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Japan’s economy seen back in decline on COVID-19, supply issues

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© Reuters. FILEPHOTO: A group of people crosses a Tokyo street March 18, 2015. REUTERS/Yuya Shino

By Daniel Leussink

TOKYO, Reuters – Japan’s third quarter economy contracted due to supply and consumption bottlenecks and curbs on coronavirus resurgence. A Reuters poll showed that economists believe this.

This forecast contrasted sharply with the poll from the month before, which predicted an increase in the quarter. It also underlines the severe toll chip and parts shortages have had on Japan’s manufacturing sector.

The poll revealed that growth is expected to pick up in the current quarter, as consumers get a boost due to the Sept. 30, lifting of pandemic restrictions, and because auto production recovers from interruptions caused by Asian factory shut downs.

According to over 30 analysts’ median predictions, the world’s third largest economy contracted 0.8% annually in the third quarter. This is a reverse of the 0.8% growth projected for last month.

Last quarter’s contraction saw the economy shrink by 4.2% annually.

According to Naoki Murakami (senior economist, Asset Management One), “Consumption will likely have fallen” and that car production, which can have a significant impact on the economy, has declined in July-September.

The government will release preliminary third quarter GDP data on November 15.

This quarter is expected to see an economic rebound of 5.1%. Consumer activity has recovered rapidly after the collapse in COVID-19 deaths and cases. The surge in vaccinations, which now covers more than 70% of people worldwide, will help to boost consumer activity.

Fourth quarter growth is expected to be encouraged by the easing of supply disruptions in Asia, which has been a critical fix for the auto industry. However, there was a potential risk from the shortage of semiconductor chips globally.

The increase in people on the streets indicates that consumption will rebound in October/November. AtsushiTakeda, Itochu Economic Research Institute’s chief economist, said: “Travel and hotel reservation are both increasing.”

“Growth is likely to turn positive in October and December, while Prime Minister Fumio Kishhida’s economic stimulus package should be visible after next year.”

According to the Nov. 1–10 poll, fourth quarter growth was more optimistic than predicted 4.5% growth last month.

Nearly 90% percent of economists polled believed that the recent weakness in the yen against major peers was mostly good for the economy, despite global rises in energy and raw material prices.

The Japanese yen fell to a nearly four-year low against US dollars and more than five years against the British pound.

According to Hiroshi Urai, JPMorgan Securities’ chief Japan economist, overall, Japan’s economic recovery isn’t expected to be immediate. But, this could lead Japan’s purchasing power to decline over time.

Ugai indicated that while the depreciation of the yen stimulates economy right now, Ugai warned that rising energy costs and smaller companies could make it more difficult for households to pay.

When the yen fell below 130 per dollar, economists asked eight experts what level would cause economic harm. Five economists suggested a range between 125 and 130 yen per dollar. Eight chose 120 to 125 yen.

Three economists chose to pick “115-120Yen per Dollar”, while the other two selected “110-115Yen per Dollar” and one picked “stronger than 110Yen per $1”.

(See the Reuters Global Economic Poll for more stories:

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