Japan’s Q3 growth forecast more than halved on COVID-19 impact

FILE PHOTO: People wearing protective masks in a shopping district in Tokyo,
FILE PHOTO: People wearing protective masks, amid the coronavirus disease (COVID-19) outbreak, make their way at a shopping district in Tokyo, Japan, September 9, 2021. REUTERS/Kim Kyung-Hoon/File Photo

September 14, 2021

By Daniel Leussink

TOKYO (Reuters) – Japan’s export-reliant economy will grow at less than half the pace in the current quarter than thought just one month ago, held back by local coronavirus outbreaks and the impact from the pandemic abroad, a Reuters poll found.

But economists said the world’s third-largest economy would not shrink in July-September, with modest growth forecast to pick up next quarter, although also at a weaker pace than predicted in the July poll.

While vaccination rates are improving and daily COVID-19 infections appear to have peaked, an ongoing state of emergency https://www.reuters.com/world/asia-pacific/japan-seeks-extend-covid-emergency-curbs-tokyo-other-areas-minister-2021-09-09 in Tokyo and other areas that is set to last until end-September was set to weigh on labour demand and spending, they said.

“Even assuming this is the last major wave we’re seeing… the repercussions of this are going to stay with us for some time,” said Stefan Angrick, senior economist at Moody’s Analytics.

Japan’s economy was seen expanding an annualised 1.2% this quarter, the Sept. 3-13 poll of about 40 economists showed, down from a 2.7% expansion projected last month and 4.2% growth forecast in July.

Private consumption, which makes up about 55% of Japan’s gross domestic product, was likely to come in negative this quarter, said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

But others said consumption was unlikely to contract much in the third quarter thanks to Tokyo’s hosting of the Olympics in July and August and as more people shrugged off https://www.reuters.com/world/asia-pacific/pandemic-fatigue-complicates-japans-covid-fight-risks-recovery-delay-2021-08-18 voluntary requests to stay home.

“Growth will likely hold up in the third quarter, but I think the global semiconductor shortage is going to impact October-December,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“So exports are likely to slow down somewhat because of that.”

The poll showed economists also cut still robust annualised growth for the fourth quarter to 4.4% from 5.4%.

The median poll forecast for the current fiscal year was trimmed to 3.3% growth from 3.5% expected last month, while that of next fiscal year was unchanged at 2.7%.

Core consumer prices, which exclude volatile fresh food prices, were expected to shrink 0.1% this fiscal year, down from a 0.3% increase expected last month, the poll showed.

When asked which potential candidate for premier under Japan’s next administration would deliver an economic policy agenda with the best chances of stimulating medium-term growth 19 of 30 economists who responded said COVID-19 vaccine minister Taro Kono.

“Kono has pledged to liberalise the labour market and to speed up digitalisation,” said Marcel Thieliant, senior Japan economist at Capital Economics.

“While those areas are notoriously difficult, his maverick style has a chance of success.”

Four economists nominated former foreign minister Fumio Kishida, three said ex-internal affairs minister Sanae Takaichi, and the remaining four gave other answers.

The Liberal Democratic Party (LDP) will hold a leadership election on Sept. 29, after Prime Minister Yoshihide Suga announced this month he was stepping down, with the winner of the vote all but assured to be Japan’s next leader.

Eight of 34 of respondents thought the Bank of Japan (BOJ) would never end all its asset purchase programmes completely, nine said the central bank would do so in over 10 years, 10 said within 10 years and seven said within five years.

The BOJ has been purchasing assets as a way of stimulating its economy and attempting to boost inflation for most of the last 20 years. Inflation has remained well below the central bank’s 2% target despite massive monetary easing.

The poll showed analysts remained unanimous in saying the BOJ would hold its short-term interest rate target at -0.1% and the 10-year bond yield target around 0% at its policy meeting on Sept. 21-22.

About 80% of economists expected the central bank to begin unwinding its ultra-easy monetary policy when it makes its next move, according to the poll.

(For other stories from the Reuters global economic poll)

(Reporting by Daniel Leussink; Polling by Shaloo Shrivastava, Md. Manzer Hussain and Vivek Mishra; Editing by Ross Finley and Richard Pullin)