Ahead of the release of Japan’s Q3 2022 preliminary GDP figures on Tuesday 15 November, Hiroyuki Ueno, senior economist at SuMi TRUST, says that the economy will continue to grow, aided by the depreciating yen, but price rises in Japan and conditions in the US and China could hurt the economy in the mid to long-term:

“We forecast that the preliminary GDP figures for Q3 2022 will show Japan’s economy continued to grow, with GDP growth rising by 2%. This is because even though the Japanese economy faces headwinds in the short-term, capital investment has strengthened and is in recovery.

“The possibility of Japan falling into a recession is low, although there is a chance that prolonged monetary tightening by central banks, particularly the US Federal Reserve, could damage the Japanese economy if the yen and dollar continue to diverge to record lows.

“The depreciation of the yen is a big factor in the current positive outlook. In Q2 2022 there was a notable increase in the yen-converted earnings of export-oriented companies in industries such as electricity, chemicals and machinery. There was also a considerable increase in the yen-converted earnings of companies that are profitable overseas. With the current exchange rate we expect this trend to have continued into Q3.

“However, it is not all a bed of roses. The Q3 preliminary figures should also show that other industries have struggled due to the rising cost of energy. This is reflected not only in the rise in prices of raw materials, but also for daily necessities such as transportation and production costs. This is particularly problematic for the food and beverage industries that are struggling to pass these costs onto consumers.

“We expect that these pressures will be ameliorated in the medium term by a rise in tourism. Overseas travel restrictions have been eased and the yen’s depreciation gives tourists better value for money, making Japan more attractive as a destination.

“We expect companies to respond to price rises by raising wages, a task made easier by the depreciating yen. This will stimulate a rise in consumer spending, which will help those industries struggling in the current climate.

“The global economic climate does pose risks to Japan. The CCP’s zero Covid policy has already had a major impact on companies that rely on Chinese exports, and these companies will suffer further if Sino-US relations continue to deteriorate, as this will accelerate the Japanese decoupling from the Chinese economy.”