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Macroscope | Japan’s economic outlook remains gloomy but the yen’s future could be bright
- The combination of the pandemic, economic headwinds and tense relations with China might not seem encouraging for Japan, but appearances can be deceiving
- The yen often exhibits safe haven characteristics, trading anti-cyclically and gaining in strength when investors are downbeat
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Japan’s economy grew at a faster-than-expected pace in the second quarter this year, but there are dark clouds on the horizon. Japan’s key automotive sector continues to face headwinds from bottlenecks in global supply chains, Tokyo’s relations with Beijing are somewhat strained and Japan remains in the grip of Covid-19.
That might not immediately seem like a supportive combination for the yen, but first glances can be deceiving.
Revised data from Japan’s Cabinet Office, released last week, showed the Japanese economy grew by 1.9 per cent from April to June. That was above the median forecast of a 1.6 per cent rise expected by economists polled by Reuters, and significantly higher than the official preliminary estimate of a 1.3 per cent expansion.
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But that is where the good news basically ends. Last Friday saw Toyota Motor Corp, the world’s largest carmaker, cut its target for annual production by 300,000 vehicles as output at components factories in Malaysia and Vietnam was affected by Covid-19, accentuating existing supply chain problems caused by a global shortage of automobile chips.
Meanwhile, in China, the world’s biggest car market and a key sales area for Japanese carmakers, those same supply chain constraints helped fuel a 17.8 per cent year-on-year fall in vehicle sales in August.
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Nearly 150 Japanese lawmakers visit controversial war shrine
Nearly 150 Japanese lawmakers visit controversial war shrine
Neither are China-Japan relations particularly harmonious at present, with Beijing expressing “strong dissatisfaction and firm opposition” following recent visits by Japanese cabinet members to the Yasukuni Shrine. Meanwhile, the decision by Chinese authorities to close the Tang Little Kyoto project in Dalian, characterising it as a “cultural invasion”, generated heavy criticism in Japan.
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