–Upward Revision 1st in 17 Months Since July 2020, when Covid Cases Ebbed
–Govt Sees Consumption, Business Sentiment Firmer But Capex Pickup Pausing
By Max Sato
(MaceNews) – Japan’s government Tuesday upgraded its economic overview for the first time in 17 months in light of a steady improvement in consumer spending after the government eased its strict Covid restrictions on Oct. 1, resulting in a pickup in confidence in the service sector, according to its monthly report released by the Cabinet Office.
The government said the economy is “showing signs of a pickup” while severe conditions caused by the pandemic are “gradually easing.” Last month it said the economy “continues to show weakness in picking up,” although severe conditions caused by the pandemic are “gradually easing.”
The first upward revision since July 2020, when Covid-19 infections slowed between the first and second waves in Japan, was made three months after the government downgraded its overview by noting that the pickup was slowing.
As for overseas economies, the government maintained its overall assessment, saying they are “picking up while severe conditions caused by coronavirus infections are easing.” It revised up its view on the Indian economy, saying it is “picking up,” instead of “showing signs of a pickup, although it is in severe conditions.”
On the near-term outlook, the government remains optimistic about recovery from last year’s slump, saying, “The pickup in the economy is expected to continue, supported by the effects of the policies and improvement in overseas economies, while economic and social activities move toward normalization.”
It also warned about “higher downside risks” posed by the spread of the pandemic, including variants, as well as the drag from supply-side constraints and rising materials prices.
Key points from the monthly report:
The government upgraded its assessment on private consumption, which accounts for about 55% of the gross domestic product, for the second straight month, saying it is “picking up,” compared to its previous statement that it was “showing signs of a pickup, while some weakness remains.” Last month, the first upward revision was made in 13 months.
Consumer spending has moved upward steadily since late November and credit card data shows the pickup has spread to expenditures on entertainment, such as going to the movies and amusement parks.
New vehicle sales are picking up as delays in parts supply from Southeast Asia have eased, allowing carmakers to deliver more vehicles. Spending on eating out and traveling is also increasing but people appear to be staying closer to their cities, being cautious about a possible sixth wave of Covid infections.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Nov. 25 until Nov. 30 showed sentiment improved only slightly amid early news reports of an outbreak of the Omicron variant, which clouded the near-term outlook.
The Watchers’ sentiment index for Japan’s current economic climate posted the third month-on-month rise in November, rising 0.8 point to an eight-year high of 56.3 on a seasonally adjusted basis after surging 13.4 points to 55.5 in October after the government lifted its state of emergency Covid restrictions on Oct. 1, recovering from August’s 13.7-point plunge to a seven-month low of 34.7. November’s 56.3 is the highest level since 56.3 in November 2013.
Looking ahead, the Watchers’ outlook index, which shows sentiment about the situation two to three months ahead, marked the first drop in three months, falling 4.1 points to 53.4 in November after rising 0.9 point to a nearly eight-year high of 57.5 in October.
In the monthly report, the government also upgraded its assessment of business sentiment for the first time in five months, saying it is “showing signs of a pickup,” instead of “showing signs of a pickup, although some severe aspects remain.”
Confidence among major manufacturers in Japan was unchanged in December from September as it had steadily recovered from the pandemic-hit 2020, while non-manufacturers – particularly in-person service providers, hotels and restaurants – reported a rosier picture, according to the Bank of Japan’s quarterly Tankan survey conducted from Nov. 10 until Dec. 10 and released last week.
The negative impact of the Omicron variant may not be fully reflected in the survey results as the BOJ is believed to have received many responses by the end of November.
The official assessment of employment conditions was also revised up for the first time in 15 months as their improvement became clearer, particularly in job offers.
On the downside, the government downgraded its view on business investment in equipment for the first time in 13 months, saying its pickup is “pausing.” Last month, it said capex was “picking up.” The prolonged pandemic and supply chain bottlenecks have delayed plans for investment, particularly in software.
Business investment posted its first quarter-on-quarter shrink in four quarters in July-September, down 2.3% on quarter, and pushed down the Q3 GDP by 0.4 percentage point. The gross domestic product slumped a real 0.9% on quarter, or at an annualized pace 3.6%, in the third quarter after the economy expanded 0.5%, or an annualized 2.0% in the second quarter.
The BOJ’s Tankan showed that major firms planned to increase their business investment by a combined 9.3% in fiscal 2021 over fiscal 2020, when they saw an 8.3% drop in capex, but it was smaller than a 10.1% increase planned in the September survey. Smaller businesses expect their capex plans for fiscal 2021 to rise a combined 5.1% (vs. an 8.5% drop in fiscal 2020), up slightly from a 4.7% gain planned in the previous survey.
The government maintained its assessment of exports as being “largely flat” after downgrading it for the second month in a row in November.
Japanese exports rose 20.5% in November for the ninth straight year-on-year rise, with the pace of increase picking up from 9.4% in October, amid a recent improvement in parts supply from Southeast Asia. The Bank of Japan’s real export index rebounded a seasonally adjusted 9.2% on month in November for the first rise in four months after dipping 0.6% in October.
The government also left its assessment on production unchanged, saying its pickup is “pausing.” Easing supply constraints underpinned the auto sector but slower production of smartphones in China and other locations is keeping demand for electronic parts and devices sluggish.
Industrial production rebounded a seasonally adjusted 1.1% from the previous month in October, marking the first increase in four months after a 5.4% slump in September.
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
- Private consumption is “picking up” vs. “showing signs of a pickup, while some weakness remains” (the second straight upgrade; last upgraded in November 2021; last downgraded in September 2021).
- Business investment: Its pickup is “pausing” vs. it is “picking up” (the first downgrade in 13 months; upgraded in April 2021; downgraded in November 2020).
- Housing construction is “largely flat” vs. “firm” (the first downgrade in 27 months; upgraded in September 2021; downgraded in September 2019).
- Exports are “largely flat” (unchanged; upgraded in December 2020; downgraded in November 2021).
- Industrial production: Its pickup is “pausing” (unchanged; upgraded in November 2020; downgraded in November 2021).
- Corporate profits are “picking up, although some weaknesses remain among non-manufacturers” due to the impact of COVID-19 (unchanged; upgraded in August 2021; downgraded in April 2020).
- Industrial production: Its pickup is “pausing” (unchanged; upgraded in November 2020; downgraded in November 2021).
- Corporate profits are “picking up, although some weaknesses remain among non-manufacturers” due to the impact of COVID-19 (unchanged; upgraded in August 2021; downgraded in April 2020).
- Business sentiment is “showing signs of a pickup” vs. “showing signs of a pickup, although some severe aspects remain” (the first upgrade in five months; upgraded in July 2021; downgraded in May 2021).
- Employment conditions are “picking up in some components such as job offers, while weakness remains due to the influence of the infectious disease” vs. are showing “steady movements in some components such as job offers, while weakness remains, due to the influence of the infectious disease” (the first upgrade in 15 months; upgraded in September 2020; downgraded in May 2020).
- Consumer prices are “firm” (unchanged; last changed to “firm” from “flat” in August 2021; downgraded in March 2020).
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Contact this reporter: max@macenews.com
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