Global Economic Outlook – September 2022 Japan: Loose policy keeping the yen down, adding to inflation Headwinds to households Inflation has risen above The Bank of Japan’s continuation are mounting, exports the Bank of Japan’s target with loose policy settings has weighed down by global and has further to rise in caused the yen to depreciate to environment. the months ahead. its lowest level in decades. Japan has had a slow start to 2022 with GDP rising by Table 6: KPMG forecasts for Japan less than 0.6% in the last six months. Activity has been 2021 2022 2023 supported by the continued relaxation of Covid restrictions, which has enabled a solid rebound in consumption. But GDP 1. 7 1. 6 2.2 momentum is expected to ease over the rest of 2022, as Inflation -0.2 2.4 1. 6 household budgets are squeezed by the step up in inflation. Lockdowns in China have put a significant drag on exports, Unemployment rate 2.8 2.5 2.6 and while conditions there are now improving, there are Source: Cabinet Office of Japan, KPMG analysis. significant clouds hanging over other regions. Overall, we Note: Average % change on previous calendar year except for unemployment rate, now expect Japan’s economy to grow by 1.6% this year, which is average annual rate. followed by 2.2% in 2023. After rebounding through Q2, the latest activity data suggests that momentum in Japan’s economy is now easing. The services PMI, an indicator of growth momentum in the sector, fell into contractionary territory in August (49.2), suggesting that the inflationary headwinds facing households are flowing through to spending. But pent-up demand and excessive savings accrued during the pandemic are providing some immediate relief, with retail sales increasing by a robust 2.6% on the month in July. Outside of domestic consumers, there is still scope for a further rebound in service activity through a continuing recovery in tourism inflows. Japan’s border restrictions have remained among the tightest in the world this year, with steps to re-open lagging behind most other countries. There was a further easing of the rules in September, with travellers outside of tour groups now allowed to enter as long as they have pre-booked their trip with an agent. Even so, the new daily cap of 50,000 for inbound arrivals is still around half of pre-virus arrivals so there is some way to go before the sector has fully recovered. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 23