Sentiment and policy signal economic upturn in Japan

Significance

This followed a modest rebound in the final three months of 2021 that proved short-lived after the government reimposed COVID-19 restrictions. The rising cost of imports also slowed growth, with energy prices surging and the yen falling to its lowest level against the US dollar in 20 years.

Impacts

• There are indications that strong consumption could follow the relaxation of restrictions.
• COVID-19 remains at large, but Tokyo will learn from normalisation policies that have been adopted in other leading economies.
• Expectations for a further recovery for households and businesses suggest that firms anticipate that an economic recovery is on its way.
• Suppressed business investment will only take off when rising demand strains capacity, at best a prospect for later this year.