Japan’s Economy: Monthly Outlook (May 2022)

Economic outlook revised downwards; growth potential in consumption of services and related sectors to provide underlying support for economy

  • Keiji Kanda
  • Wakaba Kobayashi
  • Kazuma Kishikawa


◆Due to the worsening outlook for the overseas economy, we have revised our outlook for Japan’s economy downwards. We now see growth in Japan’s real GDP at +2.9% in FY2022, with FY2023 at +1.9%. According to our main economic scenario, economic normalization will progress due to the effectiveness of additional vaccinations and the diffusion of oral medicines etc. However, there is major downside risk due to factors such as the Ukraine crisis, the situation of the spread of COVID-19, US monetary policy, and the sluggish Chinese economy.

◆We expect to see room for recovery in the consumption of domestic services and inbound consumption in FY2022, as well as major potential for production increases in motor vehicles. Our outlook sees a continuation of economic recovery despite highs in the price of resources. If the consumption of services recovers to the level seen during the Jul-Sep period of 2019 just before the increase in the consumption tax, the amount of growth in annualized terms could reach around 10 tril yen (or around 7.6 tril yen excluding inbound consumption). Meanwhile, domestic pent-up demand for passenger vehicles is estimated to have reached around 1.5 tril yen as of the end of April 2022.

◆Under normal economic circumstances, it is generally understood that a weak yen carries the influence of bringing a net plus to Japan’s economy. However, it has become difficult for the weak yen to realize this plus effect on the economy due to the influence of the Ukraine problem and the spread of COVID-19. Under these circumstances, if yen depreciation against the dollar continues at the 10% seen during the Jan-Mar period during the Apr-Jun period and beyond, the negative effect on Japan’s FY2022 real GDP is estimated to reach around -0.05%. The progressively weak yen experienced recently is considered to be “bad yen depreciation,” and the potential negative effects on Japan’s economy need to be watched carefully.

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