— Consumers Brave Omicron Scare in Year-End, New Year Leisure Season
— Production Improving on Easing Supply Constraints
By Max Sato
(MaceNews) – Japan’s government Tuesday maintained its economic overview after upgrading it last month for the first time in 17 months, saying consumer spending is picking up — despite rising Covid cases — and production is improving on easing supply constraints, 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.”
As for overseas economies, the government maintained its overall assessment, saying they are “picking up while severe conditions caused by coronavirus infections are easing.”
On the near-term outlook, the government remains optimistic about recovery, saying, “The pickup in the economy is expected to continue, supported by the effects of the policies and improvement in overseas economies.” It vowed to “take all possible measures” against Covid while allowing the economic and social activities to continue.
It also warned about “higher downside risks” posed by the spread of the pandemic, the drag from supply-side constraints, and rising materials prices.
Key points from the monthly report:
The government maintained its assessment on private consumption, which accounts for about 55% of the gross domestic product, after upgrading it for the second straight month in December, saying it is “picking up.”
Consumer spending has been hovering around the average year levels seen from 2017 through 2019 since mid-December, according to private-sector data, while retail stores reported higher sales during the year-end and new year shopping season, compared to a year earlier.
People generally braved the Omicron scare and dined out more and resumed visits to their hometowns for the traditional new year’s celebrations after restraining a year before, supporting private consumption.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Dec. 25 to Dec. 31, showed sentiment was nearly flat in the face of a spike in coronavirus cases caused by the more contagious Omicron variant and the near-term outlook became dimmer.
The Watchers’ sentiment index for Japan’s current economic climate posted the fourth straight month-on-month rise in December, edged up to 56.4 on a seasonally adjusted basis, the highest in 16 years (since 57.5 in December 2005), but the increase was only 0.1 point after rising 0.8 point to an eight-year high of 56.3 in November and surging 13.4 points to 55.5 in October.
The government ended its state of emergency Covid restrictions on Oct. 1, which helped the index recover from August’s 13.7-point plunge to a seven-month low of 34.7.
But the rapid spread of Omicron-caused infections has prompted the governors of Tokyo and other prefectures to ask the government to issue restrictions on economic activity, short of a state of emergency.
In light of the latest Covid development, rising materials prices and supply constraints, the Watchers’ outlook index, which shows sentiment about the situation two to three months ahead, slumped below the key 50 mark, posting the second consecutive drop, down 4.0 points to a four-month low of 49.4 in December after falling 4.1 points to 53.4 in November and reversing a 0.9-point gain to a nearly eight-year high of 57.5 in October.
In its monthly report, the government revised up its assessment on production for the first time in 14 months, saying it is “showing signs of a pickup,” compared to its previous view that its pickup was “pausing.”
Easing parts shortages following resumed factory operations in Southeast Asia, which was hit by Covid lockdowns in August, have supported the auto sector, which in turn is helping manufacturers of plastics, iron and steel and non-ferrous metals.
Data released late last month showed that Japan’s industrial production jumped a seasonally adjusted 7.2% from the previous month in November for the second straight monthly rise as supply chain disruptions eased further to help carmakers recover some lost output.
The government maintained its assessment of exports as being “largely flat” after downgrading it for the second month in a row in November. Shipments of vehicles and parts are improving while those of capital goods are showing. Exports of smartphone parts and base stations for the 5G telecommunications standard are expected to increase.
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 improved parts supply from Southeast Asia but global transport bottlenecks and the spread of the Omicron coronavirus variant clouded growth prospects.
The government noted that the increase in producer prices has slowed, reflecting softer energy and commodities markets.
The corporate goods price index (CGPI) fell 0.2% on the moth in December after rising 0.7% in November, posting the first drop in 13 months. From a year earlier the CGPI rose 8.5% in December, marking the 10th consecutive gain after rising 9.2% in November.
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
* Private consumption is “picking up” (unchanged; last upgraded in December 2021; last downgraded in September 2021).
* Business investment: Its pickup is “pausing” (unchanged; upgraded in April 2021; downgraded in December 2020).
* Housing construction is “largely flat” (unchanged; upgraded in September 2021; downgraded in December 2021).
* Exports are “largely flat” (unchanged; upgraded in December 2020; downgraded in November 2021).
* Industrial production is “showing signs of a pickup” vs. its pickup is “pausing” (the first upgrade in 14 months; last 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” (unchanged; upgraded in December 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” (unchanged; upgraded in December 2021; downgraded in May 2020).
* Consumer prices are “firm” (unchanged; last changed to “firm” from “flat” in August 2021; downgraded in March 2020).