Japan’s Economy: Nikkei 225 hits a fresh 29-year high with its GDP bouncing back

Japan’s GDP surges annualized 21.4% with the government programs stimulating hardest hit industries by the pandemic

The Japanese Cabinet Office announced on November 16 that GDP in July – September period in real terms increased by 21.4% year-on-year, the highest growth rate ever since 1980. Thanks to the resumption of economic activity, the export increased by 7.0% from the previous quarter and domestic consumption was brisk with food and restaurant service industries performing well. 

Although GDP is still less than that of the same period of the previous year by 5.8% in nominal term showing the economy has not returned to the state before the pandemic, economists of securities firms expect Japan’s economy to continue its steady recovery as the number of infected people in Japan are well under control compared to Europe and the United States. 

According to the Economy Watchers Survey for October released by the Cabinet Office, people's business sentiment is also improving with its DI for current economic conditions went up by 4.8 points from the previous month to 54.5, rising for the sixth straight month.  

The survey results show that Japanese workers in a range of industries are feeling more optimistic about the state of the economy. It may be a sign that Japan's economy is gradually recovering from the initial economic impact of the coronavirus pandemic.

Corporate business conditions also seem to have come out of the worst period

Under these circumstances, 36% of the major listed companies headquartered in Aichi, Gifu and Mie prefectures in the Chubu region enjoyed incremental profits in the July-September period. Companies in automobile-related industry and in the retail industry such as food supermarkets that have captured the demand of people staying at home, have high profit growth rates. 

Toyota Motor Co., Ltd., which is based in Aichi prefecture, has almost normalized its business performance in September and its global sales in October climbed 8.3% to 847,713 units backed by solid sales in the United States and China. Profits of Aisin Seiki and Toyota Boshoku, which belong to the Toyota Group, are also recovering. 

Although the infection of the new coronavirus continues to spread, corporate performance seems to have come out of the worst period as a whole. On the Tokyo Stock Exchange, the Nikkei Stock Average ended at 26,644.71 yen on November 27, breaching a price range not seen in 29 years and 6 months since April 1991. The sharp rise in the US stock market on the backdrops of expected progress in vaccine development for the new coronavirus and BOJ’s ultra easy monetary policy also pushed up the Nikkei Stock Average.

The Japanese government suspends the travel subsidy program in areas with a high number of the COVID-19 cases

The government's programs such as “Go To Travel” and “Go To Eat”, have also seemed to support the consumer sentiment and stimulated demand. However, continuing increase of COVID-19 daily cases forces travel agencies to temporarily stop taking new reservations under the “Go To Travel” campaign for destinations where infections are on the rise at a certain pace. 

The Japanese government asked prefectural governors to consider to scale back on sales of coupons for “Go To Eat” program to avoid the infection growing further. Since those programs were started, economic activities around the country came to life with diners returning to restaurants and shoppers returning to malls. Japanese economy seems to be put under a tug of war between growing COVID-19 new cases and the government support measures and BOJ’s ultra easy monetary policy.