Japan’s Steady Performance To Continue

The Bank of Japan’s Governor Kuroda said to parliament on March 5th that there is no need to widen the band set for its long-term yield target, as

This underlining of a stable monetary policy will help continue the progressive recovery of the Japanese economy following the shock the COVID-19 pandemic dealt the economy and its effects on the global economy. In the current quarter, production and trade are holding up well, supported by strong foreign demand and a robust manufacturing sector. However, declining consumption and services due to the COVID state of emergency mean that GDP will likely register a mild decline in the quarter. The economy is expected to return to positive growth in subsequent quarters with the eventual lifting of the emergency restrictions, the rollout of vaccines, supportive fiscal and monetary policies, and a strengthening of foreign demand boosted by the fiscal stimulus in the US and accelerating growth in China.

Last week, Prime Minister Yoshihide Suga announced that the COVID state of emergency for the Tokyo metropolitan region will be extended another two weeks because the situation has not improved sufficiently to end the restrictions. This extension will delay a bit of the economic recovery. Japan has been slower than most other major economies to unroll its vaccination program. However, overall, Japan has dealt with and weathered the pandemic relatively well, as have a number of its Asia-Pacific neighbors. It ranks 38th globally in its total number of cases, with only 8,178 deaths. Japan’s cases per million of the population is just 3,469, compared to 89,233 for the US, 61,844 for the UK, 29,808 for Germany, and 15,034 for the world average.

Following the 5% slump in the Japanese economy last year, the projected GDP growth in 2021 is 2.6%, followed by a similar advance in 2022. While such growth rates look modest compared to the average growth of most other advanced economies, they will be more than three times Japan’s average growth rate of 0.72% over the preceding 2010–2020 period. The growth of Japan’s economy, the globe’s third-largest as measured by nominal GDP, is limited by demographic headwinds, namely a projected 30% decline in the working-age population over the 2020–2030 period. This decline can be offset to some extent by increasing labor force participation. Increased immigration would also help but is not favored thus far. Chronically weak demand, worsened by pandemic restrictions, has also been a limiting factor.

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Disclosure: The author does not have any of the ETFs mentioned in this note in his personal investments.

Disclaimer: The preceding was provided by Cumberland Advisors, Home Office: One ...

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