Japan’s Economy: Monthly Outlook (Aug 2022)

◆In light of the announcement of the Apr-Jun 2022 GDP 1st preliminary results, we have revised our economic outlook. We now see growth in Japan’s real GDP at +2.6% in FY2022, with FY2023 at +1.8%. According to our main economic scenario, economic normalization is expected to progress due to the reviewing of the approach to handling COVID-19 under the Infectious Diseases Control Law, and the effectiveness of additional vaccinations.

◆While there is major downside risk centering on exports affected by a tough external environment, we expect the continuation of relatively high positive growth due to three areas where there is much room for recovery. These are (1) domestic consumption of services (excluding inbound), (2) inbound consumption by foreign tourists visiting Japan, and (3) motor vehicle production. The shortage of semiconductors used on the manufacture of motor vehicles is expected to be resolved in 2023. Assuming recovery production ensues, the appearance of pent-up demand should bring major growth in the consumption of durables, while at the same time boosting capex spending and exports.

◆While major advanced nations other than Japan have largely eliminated domestic COVID-19 restrictions and border measures, and steered toward a “living with corona” policy, the Japanese government's measures to prevent the spread of infection have so far been seen as a drag on the recovery of service consumption and inbound consumption. Most recently, debate has begun regarding taking a new look at the approach to the handling of the Infectious Diseases Control Law. The revision of the COVID-19-related system and the spread of new vaccines will boost demand for travel, dining out, entertainment, and other activities.