By Max Sato
(MaceNews) – Japan’s government Tuesday maintained its economic recovery scenario amid strong catchup demand for business investment and solid spending on dining out and traveling, but continued warning about downside risks posed by global slowdown amid tightening by many central banks and the weak yen that is boosting already high import costs, according to its monthly report released by the Cabinet Office.
The Ministry of Finance and the Bank of Japan appear to have stepped into the currency market to sell dollars for yen during New York trading hours on Friday morning, and again on Monday morning Tokyo time, in a stealth operation to maximize impact.
Unlike on the Sept. 22 Tokyo evening, when Japan announced it had just conducted its first yen-buying foreign exchange operation in about 24 years, top MOF officials have declined to confirm or deny their suspected action in the past few days.
Finance Minister Shunichi Suzuki simply said Monday, “We are facing off against speculators harshly through the market.” He also repeated his recent remarks that the ministry would “take necessary action” to counter “excessive fluctuations caused by speculation.” The yen was been losing its value as investors prefer U.S. dollar assets for higher returns as the Federal Reserve has been raising rates aggressively to fight inflation while the BOJ has stuck to its easing stance.
In its October report, the government said the economy is “picking up moderately.” It last upgraded the view in July from its previous statement that the economy was “showing signs of a pickup.”
It repeated its request first made in May that the Bank of Japan should “achieve the price stability target of two percent in a sustainable and stable manner.”
Despite the depreciation of the yen and 3% consumer inflation, the BOJ board, at its two-day meeting ending Friday, is expected to decide in a unanimous vote to maintain its super-low interest rate targets along the yield curve and large asset purchases in order to help the economy recover to pre-pandemic levels and anchor inflation around its stable 2% target that will accompany real wage growth.
For its part, the government will compile “comprehensive economic measures” backed by a supplementary budget to deal with “rising prices and the weaker yen,” highlighting an “unprecedented” fiscal support to lower electricity charges to households early next year. It will also support “structural wage increases” – a cycle under which subsidized wage hikes would attract highly skilled workers and boost productivity, which in turn should lead to higher wages.
In the longer term, the government will use public funds to encourage higher domestic production of food, feed crops, semiconductors and batteries for electric cars and energy storage, which is aimed at reducing Japan’s heavy dependence on imports of those strategically important goods.
As for overseas economies, the government maintained its overall assessment after downgrading it August for the first time in three months, saying, “The world economy is picking up gradually.”
By country and region, the government revised down its view on the Eurozone economy for the first time in 22 months, saying it is “mostly picking up at a gradual pace.” Previously, it had said, the regional economy was “picking up, although there is a slowdown in some areas.”
The government said the pickup in the German economy is “stalling,” the first downgrade in three months, compared to its previous assessment that the economy “continues picking up gradually.” Last month, the government downgraded its views on South Korea and the UK for the second straight month.
On the near-term outlook for the Japanese economy, the government repeated its recent view, saying, “The pickup in the economy is expected to continue, supported by the effects of the policies.” Japan has entered a new stage of living with the pandemic, it added.
“However, slowing down of overseas economies is a downside risk to the Japanese economy amid ongoing global monetary tightening and other factors” the government warned. “Also, full attention should be given to price increases, supply-side constraints and fluctuations in the financial and capital markets.”
Based on its policy mix of large-scale monetary easing, flexible fiscal spending and growth strategies aimed at promoting private investment, the government will continue implementing “flexible macroeconomic policy measures without hesitation” to achieve autonomous growth led by private demand and completely end deflation.
Key points from the monthly report: After an upgrade in July, the government has maintained its assessment on private consumption, which accounts for about 55% of the gross domestic product, saying it is “picking up moderately.”
The seventh wave of the pandemic in Japan has subsided after the number of new Covid cases hit record highs from late July to late August, supporting restaurants and tourism. Employment conditions have improved but the real average household income has been falling.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Sept. 25 to Sept. 30 and released on Oct. 11, indicated that the economy has seen reopening demand but the outlook is uncertain. The Watchers’ sentiment index showing the direction of Japan’s current economic climate posted the second straight monthly rise, up 2.9 points at 48.4 in September on a seasonally adjusted basis after rising 1.7 points to 45.5 in August,and slumping 9.1 points to a five-month low of 43.8 in July. The index remained under the key 50 line after slipping into the territory in July for the first time since April and stayed well below the 16-year high of 57.5 hit in December 2021.
The Watchers’ outlook index, which shows sentiment in two to three months, dipped 0.2 point to 49.2 in September after rebounding 6.6 points to 49.4 in August and falling 4.8 points to a six-month low of 42.8 in July. January’s 7.8-point decline to 42.5 was the lowest since 36.9 in December 2020.
In its monthly report, the government upgraded its view on business investment in equipment for the first time in eight months, citing the BOJ’s quarterly Tankan survey for September, which showed companies revised up their capex plans for fiscal 2022 ending next March.
Some capex plans are being carried over from fiscal 2021 that ended in March, when the economy was hit by the previous wintertime spike in Covid cases and supply delays were exacerbated by the Ukraine war. Capex is generally supported by demand for automation, government-led digital transformation and emission control.
The government maintained its assessment of industrial production after upgrading it in August for the first time in seven months, saying it is “showing signs of a pickup.” Previously it had said “its pickup is stalling.”
The government kept its view on exports, saying they are “largely flat.” Shipments of autos and production machines are growing while the semiconductor market has a softer tone as demand for smartphones and computers has run its course.
Japanese exports values hit a record high in September as easing supply bottlenecks are supporting the auto industry and the prices for fuels and semiconductors remain high, but high energy bills and the weak yen also lifted imports to a fresh all-time high, leading to a 14th consecutive month of a trade deficit, data released earlier this month by the Ministry of Finance showed.
The export volume index calculated by the Cabinet Office edged a seasonally adjusted 0.1% on the month in September after falling a 3.3% in August for the first drop in four months and rising 0.3% in July. Other details:
The government’s assessment of key components of the economy in the monthly
economic report:
- Private consumption is “picking up moderately” (unchanged; upgraded in July
2022; downgraded in February 2022). - Business investment is “picking up” vs. “showing signs of a pickup” (the first
upgrade in eight months; last upgraded in February 2022; downgraded in
December 2021). - Housing construction is “firm” (unchanged; upgraded in June 2022; downgraded
in February 2022). - Exports are “largely flat” (unchanged; upgraded in December 2020; downgraded
in November 2021). - Imports are “largely flat” vs. “showing signs of a pickup” (the first downgrade in
five months; upgraded in July 2022; last downgraded in May 2022). - Industrial production is “showing signs of a pickup” (unchanged; upgraded in
August 2022; downgraded in June 2022). - 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 “picking up” (unchanged; upgraded in July 2022;
downgraded in May 2020). - Consumer prices “have been rising” (unchanged; upgraded in May 2022; downgraded in March 2020).
Contact this reporter: max@macenews.com
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