Japan: Sustained cyclical recovery for economy - Nomura

Research Team at Nomura points out that the February 2017 Economy Watchers Survey suggested a deterioration in Japanese economic sentiment, with the current conditions DI down for a second straight month at 48.6 (down 1.2 m-m) as the household activity-related, corporate activity-related, and employment-related DIs all fell but the future conditions DI was up 1.2 m-m at 50.6, marking its first rise in three months and putting it above the boom-bust level of 50 for the first time in two months.

Key Quotes

“There were rises across the board for its components too. The February survey thus showed a marked distinction between current conditions and future conditions DIs.”

“Cautious household activity, but strongly-rooted expectations for growth in orders

Comments from respondents were notable for pointing to cautious household purchasing behavior. While no reasons were cited, we think there may have been concern about the weaker yen pushing up the price of imports, and the increase being passed onto product prices. By contrast, comments about future conditions demonstrated expectations of growth in orders, for example from inbound demand and advertising, and increased hiring. While observers were aware of the uncertainties over the economic policies of the Trump administration in the US, they do not look that pessimistic.” 

“Improvement in future conditions DI hints at ongoing cyclical recovery for economy

Grassroots economic sentiment had been weakening since December 2016. The current conditions DI fell again in February, and the results show concerns about downside for consumer spending in particular. This chimes with consumer spending statistics since the beginning of the year. 

By contrast, the rise in the future conditions DI suggests that there has been no interruption to the cyclical recovery in the Japanese economy overall. This is consistent with our view of a modest pickup in the economy, particularly in exports and capex, thanks in part to stimulus measures.”