Japan’s Economy: Monthly Outlook (Feb 2022)

Economic outlook revised; COVID-19 variants and resource price highs require continued vigilance

  • Keiji Kanda
  • Wakaba Kobayashi
  • Kazuma Kishikawa
  • Yuki Seto


◆In light of the announcement of the Oct-Dec 2021 GDP 1st preliminary results, we have revised our economic outlook. We now see Japan’s real GDP at +2.5% in FY2021, with FY2022 at +3.7%, and FY2023 at +1.6%. According to our main economic scenario, “Special Stricter Measures” are expected to be lifted in early March, after which the situation of COVID-19 infections is expected to remain stable due to the effectiveness of vaccines and the diffusion of oral medicines.

◆We expect the economy to recover in FY2022, centering on services. Our outlook sees a growth rate of nearly 4%, with the implementation of the Go To Travel Campaign and the resumption of inbound tourism. The easing of the semiconductor shortage is expected to generate pent-up demand for automobiles in Japan, which is estimated to be around 0.8 trillion yen, and the increase in exports will also provide a tailwind to the economy. The greatest downside risk to Japan’s economy continues to be the spread of variants of COVID-19. If newer variants appear in emerging nations and other countries, we can assume that they could eventually spread to Japan.

◆Assuming a case where crude oil prices rise by $10/bbl after March in contrast to our main scenario, real GDP in FY2022 would fall below the main scenario by about 0.1%. The share of intermediate energy inputs in this estimate is relatively large since we take into consideration petroleum and coal products and electricity and gas supply, as well as transport and postal activities, and the accommodation and food services sectors, where demand has been sluggish due to the spread of COVID-19. Although the normalization of economic activity is expected to begin in spring, we need to be wary of the possibility that high resource prices will worsen business conditions in these industries. On the other hand, although the purchasing power of households will decline due to high resource prices, the impact is expected to be mitigated by excess savings of around 60 tril yen (outlook for end March 2022).

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