By Max Sato
(MaceNews) – Japanese data and anecdotal evidence are pointing to a resilient economy after the number of Covid cases peaked in February, but households and business continued to face rising costs and uncertainty over the pandemic and geopolitical risks after an expected slump in the first quarter.
Economic confidence in Japan partially rebounded in March as the government eased Covid restrictions for all the regions on March 21 but concerns over surging prices of daily necessities and the protracted war in Ukraine are clouding prospects, government data released Friday showed.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from March 25 to March 31, indicated that sentiment improved for the first time in three months, but it was still worse than conditions seen in late 2021, which was before the highly contagious Omicron variant prompted the government to impose public health restrictions short of a state of emergency in January.
The Watchers’ sentiment index showing the direction of Japan’s current economic climate rose 10.1 points to 47.8 on a seasonally adjusted basis in March after slipping 0.2 point to 37.7 in February and plunging 19.6 points to 37.9 in January. It was still well below the 16-year high of 57.5 hit in December (the highest since 57.7 in December 2005).
“There is a gradual recovery trend in the number of guests, mainly for business purposes,” a hotel manager in the Hokuriku region, central Japan, told the survey, adding that its occupancy rate is increasing by 10%, thanks to last-minute reservations for leisure after the government eased restrictions.
A supermarket operator in Hokkaido in the north said the latest trend among shoppers is to bulk-buy seasoning, processed food, and toilet paper before further markups.
The easing of Covid restrictions is prompting advertisements for events, an ad agency in the Kinki region in the west said, while a staffing agency in Hokuriku noted that “the sense of labor shortages is intensifying” as firms are seeking more temporary workers and fewer people are looking for such work.
On the downside, a restaurant operator in southern Kanto where Tokyo is located reported that “the number of visitors, particularly, for dinner remains sluggish” on contrary to expectations for a pickup after the government lifted strict Covid rules.
“We are in a tough situation as orders have been declining since early March,” said a food processor in the Chugoku region in the west, projecting it will be forced to raise prices again amid surging raw material and transportation costs.
The Watchers’ outlook index, which shows sentiment in two to three months, marked the second straight rise, up 5.7 points at 50.1 in March after rebounding 1.9 points to 44.4 in February and falling 7.8 points to 42.5 in January, which was the lowest since 36.9 in December 2020.
“We expect demand for domestic travel will increase ahead of the Golden Week holidays (from late April to early May), judging from discount tickets issued by the local government and growing voices for resumption of the Go To campaign (central government subsidies for hotel and transportation costs),” said a travel agency in Kinki.
“Revenue is expected to rise, thanks to a continued increase in orders for equipment for producing printed circuit boards despite uncertainty over rising raw materials prices and procurement,” an electric equipment manufacturer in Chugoku said.
On the other hand, the heightened geopolitical risks are making the outlook uncertain.
“At the end of last year, production was projected to recover in April onward, but the Russia-Ukraine situation is having a big impact on the products that we handle, and it is now feared that the already late delivery of goods will be delayed further,” a passenger car dealer in the Tokai region in central Japan said.
A housing sales company in southern Kanto noted high land prices and surging building costs are hurting the industry, projecting “the business conditions will become worse in light of economic sanctions against Russia in addition to surging lumber prices.”
“Sales are expected to increase but profits are likely to decrease,” a transportation firm in Kyushu in the southwest forecast. “We cannot fully grasp the scale of surging materials prices, making it difficult to fully pass them onto sales prices.”
The Cabinet Office upgraded its assessment on current sentiment slightly, saying economic conditions are “showing signs of a pickup” despite remaining effects of the pandemic. Last month it said “the pickup in economic conditions has a weak tone“ due to the effects of Covid-19.
“Going forward, while there are hopes for a pickup as concerns over the developments of the pandemic are easing thanks to the vaccination development, there are also concerns about rising costs, which are partly due to the impact of the Ukraine situation,” it said, largely maintaining the outlook given last month.
The Cabinet Office also reported Friday that its Consumer Confidence Survey of households with two or more people, which was conducted around March 15, showed that sentiment continued deteriorating in all key areas. The results were collected from March 8 through March 22 and may not fully reflect sentiment after the government eased its Covid restrictions.
The Consumer Confidence index posted the third straight monthly drop, falling 2.4 points to a 15-month low of 32.8 in March on a seasonally adjusted basis after dipping 1.3 points to 35.2 in February. It was the lowest point since 31.8 in December 2020.
The Cabinet Office downgraded its assessment, saying consumer sentiment is “showing weak movements,” compared to its statement last month that it was “showing a weak tone.”
Consumers were more pessimistic about all four key aspects that affect their sentiment – overall economic well-being, income gains, job prospects and whether it would be a good time to buy durable goods over the next six months.
The Bank of Japan’s quarterly regional economic report released Monday showed that many regions continued to see a pickup, but eight out of the nine regions revised down their assessments in April from January, mainly reflecting a resurgence of Covid cases and supply-side constraints in some sectors.
Separately, the BOJ’s supply-side Consumption Activity Index dipped a real 1.1% on the month to 90.3 (2015 = 100) in February on a seasonally adjusted basis for the third straight monthly drop after slumping a revised 3.1% in January, according to the latest data released Thursday.
The January-February average in consumption activity was down 3.8% from the October-December quarter, indicating a weak start to the year hit by the Omicron storm and thus a contraction in the gross domestic product in the first quarter.
On the demand side, Japan’s household spending posted the second straight month-on-month drop, down 2.8% in February, as the worst spike in Covid cases in the two-year pandemic hit many regions and bad winter weather also discouraged people from going out, data released last week by the Ministry of Internal Affairs and Communications showed.
Household expenditures still marked the second straight year-on-year gain in February, albeit slight, as public health restrictions on economic activity issued in January and lifted in March were less strict than those imposed in early 2021 under a state of emergency.
Real average spending by households with two or more people rose a weaker-than-expected 1.1% on the year in February. It was the sixth year-on-year increase in the past 12 months, following a 6.9% surge in January, which was the first rise in six months. The recent gains were partly in reaction to sharp decreases seen in the first two months of 2021.