India, Japan and Australia have begun discussions on reducing reliance on China

An ICYMI from this week on the three countries set to discuss a trilateral Supply Chain Resilience Initiative (SCRI) to reduce dependency on China

  • No date has yet been set for initial negotiations but could come as soon as next week
  • initiative first proposed by Japan
  •  Japan is said to be in favour of launching SCRI by November

Japan ruling party lawmaker says unlikely to propose ban or restriction on TikTok

Comments by Japan ruling party lawmaker Nakayama

But says that a change of ownership of TikTok’s Japan operations is one possible way to address concerns over the app and whether or not it is safe to use.
A coordinated move by US and its allies against Chinese firms could draw further ire from China and that may see tensions escalate i.e. impact the risk mood. For now at least, it is still mostly the Trump administration coming down hard on TikTok and ByteDance.

Japan GDP preliminary for Q2 -7.8% q/q (vs. expected -7.5%)

Japan GDP preliminary for Q2 2020, capturing the impact of the COVID-19 outbreak and response

GDP sa -7.8% q/q  , a miss on already ugly low expectations

  • expected -7.5%, prior -0.6%

GDP annualised sa -27.8% q/q (ps when you see screaming headlines that Japan’s economy has shrunken 30% …. it hasn’t, but this is what the economically illiterate are referring to – you’ll know better)

  • expected -26.9%, prior -2.2%

GDP nominal -7.4% q/q

  • expected -6.5%, prior -0.5%

GDP deflator (an inflation indication) %

  • expected 1.7%, prior 0.9%

Private consumption -8.2%

  • expected -6.9% q/q, prior -0.8%

Business spending -1.5% … if there is some not quite so bad news to take away from the data release this smaller than expected drop in capex is it

  • expected -4.0%, prior -1.7%
This is the 3rd consecutive quarter of GDP contraction for Japan.
Japan is a net exporters, the decline in demand offshore has taken a heavy toll on shipments – Q2 exports fell at their fastest since Q1 2009 (GFC influence) and external demand has subtracted the biggest hit from GDP since 1980 (based on comparable data).
ps. yen is doing little on the data release.

Fitch on Japan: Affirms rating at ‘A’ , but lowers its outlook to negative

Fitch Ratings

  • projects Japan’s economy to contract by 5% for full year in 2020, before rebounding to 3.2% growth in 2021
  • fiscal support & expected recovery in external demand should set stage for return to quarterly growth in 2h20 under fitch’s baseline for Japan
  • says sharply wider fiscal deficits in 2020 and 2021, will add significantly to Japan’s public debt
  • project Japan’s deficit to narrow to 10.9% of gdp in 2021 and 5.3% in 2022
  • expects BOJ to maintain current interest-rate settings through at least end of 2022 under its yield-curve control framework for japan

Japan has approved a coronavirus drug – dexamethasone

NHK report overnight via Bloomberg

Japan’s health ministry has approved the use of the steroid drug dexamethasone
  • for the treatment of coronavirus patient
  • following the approval of remdesivir in May
Dexamethasone has been reported as reducing deaths among patients with severe cases of COVID-19
Dexamethasone is cheap, widely available.

Japan trade balance for June Y -268.8bn (expected Y -11.9bn)

Japanese data, exports worse than expected, imports fall lower than expected leading to a blow out on the deficit for the month

Japan trade balance for June Y -268.8bn

  • expected Y -11.9bn, prior Y -838.2bn

Trade balance adjusted Y -423.9bn

  • expected Y -331.1bn, prior Y -601.0bn

Exports -26.2% y/y

  • expected -24.7% y/y, prior -28.3%

Imports -14.4% y/y

  • expected -17.6% y/y, prior -26.2%
Japan is an export powerhouse, this miss on exports is suggestive of a global economy in even worse shape than may have been thought.

BOJ’s Kuroda: Economic activity has gradually resumed

BOJ governor, Haruhiko Kuroda, begins his press conference

  • But Japanese economy remains in an extremely severe siituation
  • Pace of recovery to only be moderate
  • Inflation is likely to be negative for the time being
  • Future economic developments remain extremely unclear
  • Risks are tilted to the downside for prices, economic growth
  • BOJ won’t hesitate to ease further if needed
  • Will continue to support corporate financing, markets
Kuroda is still maintaining a more subdued take on the economic situation but that is hardly a surprise. The recent economic data from Japan have been rather poor and a possible virus resurgence only adds to more risks surrounding the outlook.
But Kuroda stands firm in assuring that the BOJ policies since March are having an impact, though I’m sure they pretty much lucked out on this one with the Fed and ECB doing most of the heavy lifting to appease financial risks in the market for the most part.

Japan reaffirms that state of emergency declaration is not needed for now

Tokyo finds another 119 new coronavirus cases today

Japan economy minister, Yasutoshi Nishimura, is out to reaffirm that there is no need to declare another state of emergency in Tokyo just yet despite the consistent jump in the number of coronvirus cases in the capital over the past two weeks.
The count today may be skewed due to the ‘weekend effect’, with Tokyo having previously reported over 200 new cases each day over the last four days before this:

Japan Quarterly Business Sentiment Index survey (Q2): large Japanese companies worst in 11 years

Business Sentiment Index (BSI) survey conducted by the Ministry of Finance and the Economic and Social Research Institute (a part of Japan’s Cabinet office) is conducted quarterly.

Business sentiment among large Japanese companies minus 47.6 (from -10.1 in Q1)
  • worst result in 11 years
  • 3rd quarter in a row in negative territory
For medium-sized companies, negative 54.1
  • and for mid- to small-companies minus 61.1
  • each also at their worst ever
Data out a little earlier.

Quarterly Business Sentiment Index (BSI) survey, conducted May 15

  • This survey analyses business leaders’ assessments of and forecasts for the economy
  • Its purpose is to get information for tracking economic trends
  • It covers about 15,000 companies that have established their headquarters or principal offices in Japan and have capital stock of 10 million yen or more

South Korea begins military drills around disputed island amid feud with Japan

South Korea’s military will conduct two days of drills around a tiny island also claimed by Japan, Yonhap news agency reported on Sunday, just days after Seoul decided to scrap an intelligence-sharing pact with Tokyo amid worsening relations.

Tokyo and Seoul have long been at loggerheads over the sovereignty of the group of islets called Takeshima in Japanese and Dokdo in Korean, which lie about halfway between the East Asian neighbours in the Sea of Japan, which Seoul refers to as the East Sea.

The military drills were scheduled to begin on Sunday, Yonhap reported, and could exacerbate tensions between the two neighbours.

South Koreas on Thursday had announced the scrapping of the intelligence-sharing pact with Japan, drawing a swift protest from Tokyo and deepening a decades-old dispute over history that has hit trade and undercut security cooperation over North Korea.

Relations between South Korea and Japan began to deteriorate late last year following a diplomatic row over compensation for wartime forced labourers during Japan’s occupation of Korea.

They soured further when Japan tightened its curbs on exports of high-tech materials needed by South Korea’s chip industry, and again this month when Tokyo said it would remove South Korea’s fast-track export status.

The disputed islands have long been one of the most sensitive areas of contention for South Korea and Japan. Recently, South Korea and Japan traded words over the way the islands were described on a website for the 2020 Tokyo Summer Olympics.

The islands were at the centre of a more serious clash in July, when both South Korea and Japan responded to what they saw as a violation of their air space near the islands by a Russian military plane.

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