By Max Sato
(MaceNews) – Japan’s government Wednesday maintained its economic overview for May after upgrading it for the first time in four months in April as consumer spending appears to have overcome an Omicron-hit slump but it also warned about continued uncertainty over global growth amid Chinese Covid lockdowns and the Ukraine war, according to its monthly report released by the Cabinet Office.
It also urged the Bank of Japan to “achieve the price stability target of two percent in a sustainable and stable manner” by conducting “appropriate” monetary policy, which has been in place to support smaller businesses and maintain financial market stability during the pandemic, and to guide inflation toward its 2% target along with a rise in real wages in the longer term.
This reflects the view among Japanese policymakers that the recent jump in the annual consumer inflation rate to around 2% has been caused by high food, energy and materials costs amid a surge in international commodities markets, which is expected to hurt households and businesses and thus considered temporary. The BOJ board expects inflation to slip back to around 1% in the next fiscal year ending in March 2024.
The national average core consumer price index (excluding fresh food) soared 2.1% from a year earlier in April (an over 13-year high excluding the direct impact of the April 2014 sales tax hike) after rising 0.8% in March also because much of the base effects of low-cost monthly data plans introduced in April 2021 by major mobile phone carriers and expanded later has waned.
In its May report, the government simply said the economy is “showing signs of a pickup.” Last month, it said the economy was “showing signs of a pickup as severe conditions caused by the pandemic are easing.”
At the peak of Japan’s worst spike in coronavirus cases during the pandemic, the government in February downgraded its economic view for the first time in five months amid Omicron-hit sluggish consumer spending.
As for overseas economies, the government downgraded its overall assessment for the first time in 25 months amid Chinese slowdown, saying they are “picking up while stalling in some areas.” Previously, it had said overseas economies were “picking up while the effects of coronavirus infections are easing.”
On Japan’s near-term outlook, the government largely repeated its recent view, saying, “The pickup in the economy is expected to continue, supported by the effects of the policies and improvement in overseas economies.” It added that “economic and social activities are moving toward normalization.”
It also warned against “downside risks” posed by supply constraints, rising materials prices, fluctuations in financial markets amid concerns over the effects of the resurgence in Covid cases in China and the prolonged Ukraine war, moving up the impact of the lingering supply delays that have been exacerbated by China’s strict measures to contain the pandemic.
In the May report, the government said it will implement measures in the fiscal 2021 supplementary budget, the fiscal 2022 budget and an emergency package to support the economy. It will also use the “comprehensive emergency measures” put together on April 26 to help cushion the impact of high energy and commodities costs.
In addition, the government will work out the vision and the action plan by June to help Prime Minister Fumio Kishida transform the economy toward “new form of capitalism” and compile the administration’s basic policy on economic and fiscal management and reform for 2022. Kishida, who took office in October last year, wants to shift from market-oriented policies based on neoliberalism that have lasted on and off for two decades and have been criticized for creating income inequality.
Key points from the monthly report:
The government revised up its views on housing construction (largely flat vs. weaker) and employment conditions (showing signs of a pickup overall vs. picking up in some areas) while noting imports are softer due to Chinese lockdowns. Manufacturers, hotels and restaurants are seeking more workers. Total monthly average cash earnings per regular employee in Japan posted the third straight year-on-year rise in March, up 1.2% (down 0.2% in real terms), and base wages rose 0.5% on year, marking the fifth straight gain.
The government maintained its assessment on private consumption, which accounts for about 55% of the gross domestic product, saying it is “showing signs of a pickup,” after upgrading it last month from its previous view that the pickup in consumption “appears to be pausing.”
People resumed eating out and traveling more often after the government ended its strict Covid rules in late March, leading to more spending during the Golden Week holidays from late April to early May.
Credit card data shows expenditures on services including traveling and eating out have been picking up steadily and overall spending is now above the recent average (2016 to 2018) while an online weekly consumer survey indicated that spending had moved above the recent average year patterns (2016 to 2018) by early May.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from April 25 to April 30 and released May 12, indicated that sentiment continued improving last month from the Omicron-hit slump, although at a slower pace than a sharp rebound seen in March.
The Watchers’ sentiment index showing the direction of Japan’s current economic climate rose 2.6 points to 50.4 on a seasonally adjusted basis in April after surging
10.1 points to 47.8 in March, slipping 0.2 point to 37.7 in February and plunging 19.6 points to 37.9 in January. It is now above the key 50 line but still well below the 16-year high of 57.5 hit in December 2021 (the highest since 57.7 in December 2005).
The Watchers’ outlook index, which shows sentiment in two to three months, marked the third straight rise, edging up 0.2 point to 50.3 in April after rising 5.7 points to 50.1 in March, 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.
In its monthly report, the government maintained its assessment of exports as being “largely flat” after downgrading it in November last year. Shipments to the US and Europe are showing signs of a pickup but those to Asia are down as China is seeking to contain the pandemic by imposing strict zero-Covid policy measures including lockdowns of Beijing, Shanghai and other cities.
The export volume index calculated by the Cabinet Office fell a seasonally adjusted 3.1% on the month in April after being flat (-0.0%) in March and rising 1.6% in February.
The Bank of Japan’s real export index fell a seasonally adjusted 6.0% on month in April after posting two months of gains, up 0.6% in March and 1.5% in February. Capital goods shipments slumped amid uncertainty caused by the Ukraine war and supply constraints pushed down those of computers, semiconductors and other information technology goods. Exports of automobiles and auto parts marked the second straight monthly decline but at a slower pace.
The government repeated that production is “showing signs of a pickup” after revising it up for the first time in 14 months in January. Supply delays are limiting production of vehicles while output of production equipment and electronic devices has been growing gradually. Chinese port shutdowns are causing shortages of auto and electronic parts as well as products ranging from electric appliances to furniture and clothing.
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
- The pickup in private consumption is “showing signs of a pickup” (unchanged; upgraded in April 2022; downgraded in February 2022).
- Business investment is “showing signs of a pickup” (unchanged; upgraded in February 2022; downgraded in December 2021).
- Housing construction is “largely flat” vs. “weaker” (the first upgrade in eight months; last upgraded in September 2021; downgraded in February 2022).
- Exports are “largely flat” (unchanged; upgraded in December 2020; downgraded in November 2021).
- Imports are “softening” vs. “largely flat” (the first downgrade in six months; upgraded in March 2022; downgraded in November 2021).
- Industrial production is “showing signs of a pickup” (unchanged; upgraded in January 2022; downgraded in November 2021).
- Corporate profits are “picking up, although some weaknesses remain among non-manufacturers” due to the impact of the pandemic (unchanged; upgraded in March 2022; downgraded in April 2020).
- “Signs of a pickup in business sentiment are pausing” (unchanged; upgraded in December 2021; downgraded in March 2022).
- Employment conditions are “showing signs of a pickup” vs. “picking up in some components such as job offers, while weakness remains due to the influence of the infectious disease” (the first upgrade in five months; last upgraded in December 2021; downgraded in May 2020).
- Consumer prices “have been rising” vs. “have been rising gradually” (the first upgrade in two months; last upgraded in March 2022; downgraded in March 2020).
Contact this reporter: max@macenews.com
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