Japan’s Economy: Monthly Outlook (August 2019)

◆The statistical trick in the superior GDP results is last-minute shipping: Last-minute demand prior to the consumption tax hike has yet to be seen as of this point if we base our observation on household purchasing. However, it appears that the anticipated last-minute demand has become manifest in the form of last-minute shipping. This is especially the case for last-minute shipments of automobiles, which gave a major push to GDP in the Apr-Jun period. Last-minute shipments were also notable in consumer electronics, pulp, paper and paper products, chemicals, and housing (as expressed in housing starts). The effect that this has on improving growth will disappear after the consumption tax has been raised, and there will likely be a reactionary decline at that time.

◆The consumption tax hike and free education: some age groups will be winners, while others will lose out: Assuming that increase in financial burden as a result of the raising of the consumption tax rate will be offset by benefits in the form of free education, the fiscal austerity effect on a net basis can be estimated at around 2.0 tril yen. However, the package of measures is expected to make growth in benefits much larger than growth in financial burden for two age groups – households consisting of two or more persons age 29 and under and age 30 to 39. On the other hand, households consisting of two persons age 50 or older, as well as one-person households will see their financial burden become larger in relative terms. The uneven effects of benefits vs. burden depending on age group will also have an effect on consumption trends by item.

◆Revised economic outlook: FY2019 +0.9%, FY2020 +0.4%: In light of the announcement of Apr-Jun period GDP results, we have revised our outlook for the Japanese economy. We now expect FY2019 to record growth of +0.9% in comparison with the same period of the previous year, while FY2020 is seen at +0.4%. As for the future of Japan’s economy, we see positive growth continuing through the Jul-Sep period of 2019 while there is still a possibility of last-minute demand occurring, after which it will likely slow down to a low level of growth just below the potential growth rate due to the following factors: (1) exports will be stagnant due to the slowdown in the global economy, (2) inventory adjustment is still taking place, (3) growth in capex spending is slowing down due to the decline in factory operating rates, (4) consumption will mark time in association with the slowing pace of growth in employment, and (5) the effects of the consumption tax hike.