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Japan’s Economy: Monthly Outlook (June 2020)

Expiration date for “revenge consumption”: Two fiscal cliffs to watch out for

Shunsuke Kobayashi

Yutaro Suzuki


◆Japan’s economy has experienced a fierce and rapid reduction, but between the end of April early May the economy hit bottom, and most recently, has been heading toward a tentative recovery. Behind the recovery is the lifting of the declaration of emergency and a temporary increase in household income due to payment of benefits.

◆Considering these factors, the possibility that a recovery in domestic consumption more rapid than has been generally foreseen could become a reality over the next month or two is undeniable. Amongst the various components affected, temporary leadership is promising from durable goods (consumer electronics, passenger vehicles, etc.) and amusement & recreation (travel & excursions), in a phenomenon known as “revenge consumption” occurring in those categories where the downturn in demand during the period of self-restraint measures was especially prominent. On the other hand, favorable winds for components associated with stay-at-home demand (virtual spaces and local businesses) are expected to dwindle.

◆However, it is highly possible that a steep recovery will last for only a short period of time. First of all, stimulation of demand by the payment of benefits will have only a temporary effect. Moreover, there is concern that additional fiscal cliff will be generated by the diminished efficacy of the government’s employment adjustment subsidy. The employment adjustment subsidy expansion measure will terminated by end September. There is risk here of the over 5,970,000 people on leave of absence suddenly shifting to the unemployment role.

◆In addition, risk still remains that the major assumption suggesting economic recovery, mainly the halt in spread of COVID-19 infection, may be overturned. Factory operating rates, which have suffered a major decline, may very well hold down capital expenditure and recovery in imports. There is a good possibility that Japan’s economy may shift into an extremely slow pace of recovery after experiencing a short-term V-shaped recovery.

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