Macroeconomy

Japan’s industrial boom intact despite resurgent covid-19

Covid-19 resurgence could weigh on services, but external demand points to further upside in Japanese exports.

Dong Chen, Pictet Wealth Management

Japan’s industrial boom intact despite resurgent covid-19

The Japanese government announced a state of emergency in a number of major cities for the third time after a resurgence of covid-19 cases in April.

This new round of containment measures come less than three months before the (re)scheduled opening of the Tokyo Olympic Games, which were postponed a year to July 2021. Given the rise in covid-19 cases and very slow pace of vaccination in Japan (only about 1% of Japanese population have received at least one shot of vaccine so far), the risk that the Olympic Games could be cancelled altogether this year cannot be dismissed.

The new wave of infections will weigh on the Japanese economy in Q2, especially the services sector.

Nevertheless, Japan’s industrial sector is still buoyant, boosted by strong external demand. Overseas machinery orders in February were the highest since data were first made available in 1987. Machine tool orders also rose strongly in March. With a strong order pipeline, we expect further upside in Japan’s exports in the months ahead. Robust demand for Japanese machinery suggests that the cyclical global recovery continues to play out as we have expected.

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