Japan Economic Outlook
GDP growth is likely to be tepid in Q1 2023. On the one hand, investment is likely to rebound and consumer spending to accelerate compared to Q4 2022. New machinery orders grew at their fastest rate since October 2020 in January, beating market expectations, while both consumer confidence and the services PMI have averaged higher in the quarter thus far than in Q4. On the other hand, real merchandise exports were down 3.3% in January–February compared to Q4 2022, according to an estimate by Nomura, suggesting a weak external sector. In other news, the government unveiled a fresh USD 15 billion cost-of-living package on 22 March, which should support private spending. Meanwhile, Japan and South Korea held their first bilateral summit in 12 years in mid-March, signaling a warming of ties.
Japan Inflation
Inflation fell to 3.3% in February (January: 4.3%). Moreover, core inflation fell to 3.2% (January: 4.2%). Our panelists see inflation falling below the BoJ’s 2.0% target by Q3 2023, with the recent spike in inflation largely driven by cost-push factors. That said, recently higher-than-expected wage growth poses an upside risk.