Japan’s Economic Outlook Amid Fragile Domestic Consumption and External Demand


The key takeaways from this financial news highlights are:

  • The monthly poll conducted by the Bank of Japan’s (BOJ) shows a slight improvement in the service-sector mood, nonetheless, weak domestic consumption could impact this in the upcoming three months.
  • Surging living costs and yen currency’s persistent weakness may affect reliance on external demand for the world’s third-largest Japanese economy.
  • The current shakiness in China’s market is causing hesitation among domestic clientele.
  • Manufacturers and service-sector sentiments in Japan were affected by global and domestic concerns, such as cooling US-China relations, increased cost of living, China’s economic stagnation, and regional disruptions.

Japanese Economy Challenges

The BOJ’s monthly monitoring poll reveals an increasingly positive service-sector outlook. However, a slight decline is expected over the next three months due to unstable domestic consumption.

Notably, rising living costs due to the stubborn yen currency are impacting Japanese households. This side effect could potentially undermine the country’s ability to rely on external demand to balance these economic weaknesses.

Global and Domestic Concerns

Unstable conditions in China’s market pose significant concerns as domestic clients are treading cautiously. Other global issues causing concern include strained US-China relations, China’s economic slowdown, ongoing conflict in Ukraine, and renewed unrest between Israel and Hamas.

The global inflationary trend and China’s sluggish economy are affecting the willingness of companies to invest in capital and weighing on the sales of production and durable goods materials.

Impact on Japanese Manufacturers and Service-sector

Natural disasters such as the New Year’s day earthquakes on the Noto peninsula are another reason for worry among precision machinery manufacturers with factories in the affected area.

The manufacturers’ sentiment index dropped six points to +6 due to the impact on exporting sectors like automobiles and electronics respectively. The index is anticipated to remain steady in the next three months, up to April.

BOJ’s tankan Results

Meanwhile, in January, the service-sector index rose to +29 from +26, with retailers, information/communications, and transport/utilities leading the way. However, a slight decline is expected in April.

Last month, the BOJ’s tankan indicated big Japanese manufacturers’ sentiment reaching a near two-year high for the last quarter, with non-manufacturers achieving levels unseen since 1991. This development indicated favorable conditions for easing monetary stimulus.

In conclusion, these financial developments could greatly influence forex trading and potentially affect the yen currency assets.

PIP Penguin