Japan’s economy has begun to recover gradually, with the manufacturing sector and exports driving economic growth. A healthy global recovery and increasing manufacturing activity have increased demand for Japanese capital and intermediate goods. Exports have experienced double-digit growth since March of this year, with growth in May and June surpassing 40%.
Unfortunately, the country’s recovery has been uneven due to stagnant domestic consumption. The start-stop nature of emergency restrictions in the country has prevented domestic demand from gaining steam, and with the continuing spread of the Delta variant, this trend is expected to continue.
Businesses will face diverging growth trends in Japan over the next six to eight months before rising vaccination rates improve the outlook for economic reopening and domestic consumption. Executive teams need to monitor changes in the market as they finalize their 2022 strategic plans, particularly in these three key areas:
- Japan is experiencing high demand for its exports on the back of a recovering global economy. As manufacturing activity expands around the globe, demand for Japanese capital goods is expected to remain strong.
- Consumer confidence has been fluctuating along with outbreaks of the pandemic through the first half of the year. With the country currently fighting a large wave of the virus, sentiment will dip in Q3 as well. We expect that consumer sentiment will continue to be determined by the scale of the pandemic until the end of the year.
- Business confidence has displayed consistent growth throughout 2021, and there is optimism among manufacturers due to strong global demand for Japanese exports. However, this sentiment is not shared by Japanese retailers, who continue to be plagued by effects of the virus.
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