Asset Management One reviews the Japanese market in 2021 and looks ahead to see what is in-store for 2022 and beyond.
Economic Outlook for 2022
In 2021, the Japanese economy stagnated until the July-September quarter, weighed down by the prolonged declaration of a state of emergency (SOE) and supply side constraints, including the semiconductor shortage. The lifting of the SOE in October, following a decline in the number of new infections, and the gradual easing of restrictions on domestic activity towards the end of this year, should lead to a recovery in consumption over the next year.
Further, given that reduced automobile production, which has significantly depressed production as a whole, is expected to bottom out, we expect the economic growth rate to accelerate between December this year and next year. On the other hand, although the economic stimulus package compiled by the Kishida administration in November included JPY55.7 trillion in fiscal spending, which was larger than market expectations, more than half of this was for Covid-19 related measures, including a rehash of some previously announced economic measures.
We expect that stimulus handouts will offset some of the increased burden on households caused by the recent rise in food, gasoline and other prices, although the multiplier effect is likely to be limited due to the nature of the funds. Apart from that, while the number of new infections in Japan has been kept under control relatively well in comparison to global peers and a third round of vaccinations is due to start in December this year, the possibility of a resurgence must still be kept in mind.
In 2022, we believe the Japanese economy is likely to exceed its potential growth rate, led by a recovery in the domestic services sector, production and capital investment, provided that the pandemic remains largely under control and progress continues to be made in resolving supply constraints.
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