A rebound in Japanese activity is expected in the first quarter of 2023, linked to the improvement in business and household confidence surveys. The composite PMI returned above the expansion threshold in January and continued its moderate improvement, reaching 52.9 in March. Household confidence – at its highest for a year – also recovered slightly in March, but it is still very low. The upturn in GDP growth, which we expect to reach 0.5% q/q in Q1 2023, follows two disappointing quarters. Its extent should therefore be put into perspective.
Japan: Economic indicators quarterly changes
As expected, industrial production rebounded in February (+4.5% m/m), after a sharp contraction in January (-5.3%m/m) linked to the Chinese New Year. Despite this, the three-month moving average slipped again, and has now fallen below its long-term level. New industrial orders were also at their lowest level since May 2021 in February. The removal of health restrictions in China (at the very end of 2022) has offered offers opportunities for Japanese companies in 2023, but the effects have so far been unnoticeable.
The latest Tankan survey (March 2023) suggests that activity levels will remain sluggish in the coming months: the general diffusion index is up just one point, from 1 to 2.
The Japanese economy is obviously not spared from the energy shock and its consequences on companies’ financial situations are becoming increasingly palpable. The number of bankruptcies jumped by 40% in March to the highest level since June 2015. The number of bankruptcies is still a long way off those recorded during the 2008 crisis and especially during the “lost decade” of the 1990s. Nevertheless, this is the beginning of a reversal and its developments over the coming months will need to be closely scrutinised.
GDP Growth
Headline inflation fell sharply in February (-1.1 points to 3.3% y/y) thanks to the beginning of government energy subsidies. This is also pushing down the inflation measure followed by the Bank of Japan (CPI excluding perishable foods). The year-on-year figure for the latter fell from 4.2% y/y in January to 3.1% y/y in February. However, the Tokyo’s CPI indicates that a further rise in core inflation is to be expected in March.
Guillaume Derrien (article completed on 18/04/2023)
