Japan’s industry nearing the trough, with high tech leading the way
Our new proprietary business cycle phase indicator points to a trough in sight for industry, but with dispersion among sectors. High tech is leading the pack with output firmly on its way up. While most other sectors have yet to reach a cyclical trough, we believe they are now closing in.
What you will learn:
- Output of high-tech goods has been growing since the beginning of 2024 largely thanks to higher semiconductor production, notably bucking the downward trend across much of industry. We see momentum only strengthening from here, and at 4.1% growth for 2024, the industry is forecast to be one of the fastest-growing manufacturing sectors this year.
- Industrial machinery is on the other side of the spectrum, as it appears the slowdown since the end of 2022 is set to intensify. The softness is apparent across the board but is more pronounced in subsectors such as metal forming machinery, where a long inventory adjustment process appears inevitable.
- The auto sector’s position in the phase indicator is heavily distorted by the recurrent production stoppages stemming from the safety testing scandal. Absent these distortions, the sector would most likely be in the decelerating growth or accelerating decline phase.
- Chemicals have been declining since early 2022 due to higher energy prices but the turning point is close. The gradual appreciation of the yen will lower energy costs and support profit margins, although tighter monetary policy and the destocking cycle will keep growth in check.
Tags:
Related Posts
Post
Japan’s BoJ is now likely to front-load policy normalisation
We now expect the Bank of Japan will implement an additional rate hike this year, possibly in October, given the hawkish forward guidance at the July meeting. We previously projected the central bank would wait until next spring to hike again. Thereafter, we expect the BoJ to become more cautious and raise rates only once per year in 2025 and 2026 to reach a terminal rate of 1%.
Find Out MorePost
Yen volatility – so far, just a tremor for global markets
Abrupt yen appreciations have been associated with, or preludes to, global financial instability. So far, the recent yen surge has had only moderate spillovers to global financial markets, which should not have significant macroeconomic effects. But the episode is not necessarily over and the possibility of further yen gains is a distinct risk.
Find Out MorePost
SFC: Japan’s recovery – Natural Disasters, Market Turmoil, and Policy Challenges
The recent turbulence in global markets has raised some serious questions, especially with Japanese stocks seeing their biggest drop since 1987, and the VIX index, a key measure of market volatility, has hit its highest level since the COVID-19 pandemic. What's driving this sharp shift in market sentiment? Was this just an isolated incident, or could it signal the start of a broader downturn? And more importantly, where does the Japanese economy go from here?
Find Out More