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The Japanese economy has seen a decline in COVID-19 due to supply problems

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© Reuters. FILE PHOTO: People cross a street in Tokyo on March 18, 2015. REUTERS / Yuya Shino

By Daniel Leussink

TOKYO (Reuters) – The Japanese economy is likely to shrink in the third quarter to halt the recovery of the coronavirus and supply barriers have hurt consumption and production, a survey by Reuters economists showed on Thursday.

The forecast was in stark contrast to the previous month’s survey, which predicted expansion in the quarter, highlighting large chunks of tolls and chip shortages that have affected Japanese manufacturers.

But growth was expected to rise in the current quarter, as consumption on September 30 led to a reduction in the pandemic, and car production is recovering from the disruptions caused by the closure of the Asian plant, the survey showed.

The world’s third-largest economy fell 0.8% year-on-year in the third quarter, compared to the 0.8% expansion expected last month, according to the average forecast of more than 30 analysts.

The economy last contracted in the first quarter, when it fell by 4.2% year-on-year.

“Consumption is likely to fall, and car production, which has a strong impact, fell in July-September,” said Naoki Murakami, a senior economist at Asset Management One.

The government will release its first GDP data for the third quarter on 15 November.

The economy is expected to rebound sharply by 5.1% this quarter as consumer activity picks up after the rapid decline in COVID-19 cases and deaths, thanks to the rise in vaccines, which now account for more than 70% of the population.

Analysts expect growth in the fourth quarter will help ease parts supply disruptions across Asia – a key solution for the automotive industry – although the traces of the global shortage of semiconductor chips could pose a risk.

“The number of people on the street will boost consumption in October and November. Travel and hotel bookings are also increasing,” said Atsushi Takeda, chief economist at the Itochu Economic Research Institute.

“Growth will be positive in October-December, while the impact of Prime Minister Fumio Kishida’s government’s economic recovery package should be seen after its introduction next year.”

The fourth-quarter forecast was better than last month’s 4.5% growth, according to a November 1-10 survey.

Nearly 90% of the economists surveyed believed that the recent weakness of the yen vis-à-vis its main members was mainly beneficial to the economy, despite rising commodity and energy prices globally.

The yen had a four-year low against the US dollar and a five-year low against the British pound.

Overall, the yen’s loss of value is not expected to immediately hurt the Japanese economy, although it could weaken the country’s relative purchasing power worldwide in the long run, said Japan’s chief economist Hiroshi Ugai of JPMorgan (NYSE 🙂 Securities.

The loss of value of the yen is boosting the economy for now, Ugai said, but along with rising energy costs, it could affect smaller businesses and households, although that cost is likely.

Asked what level the yen will hurt the economy against the U.S. dollar, the eight economists said the damage would outweigh the merits when the yen falls below the $ 130 mark. Five chose a range between 125-130 yen for the dollar, and eight for 120-125 yen.

The next most popular option was “115-120 yen per dollar”, chosen by three economists, with one analyst selecting “110-115 yen per dollar” and another “stronger than 110 yen per dollar”.

(For other stories from the global economic survey on Reuters 🙂



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