Japan – August Economy Watchers survey

The Economy Watchers survey rebounded in August, and is at a level consistent with mild GDP growth. But the survey isn't strong or stable enough to suggest an acceleration in the sluggish pace of the post-pandemic recovery.

The Economy Watchers survey remains stuck in the see-saw trend that it has been unable to escape from since the pandemic started. After a big fall last month, there was a big rise in August. The overall trend is up, and the average level of recent months is consistent with mild economic growth. But at a bit under 50, overall sentiment isn't strong, and it is difficult to get excited about any upside potential for the economy while sentiment remains this indecisive.

The volatility in the survey in recent months has mainly come from rises and falls in the Covid-19 case count. In this sense, the rebound in sentiment in August makes some sense, given the fading of the seventh covid wave. The rise in the survey last month was led by the household sector, where sentiment is – for now at least – at a solid level.

That is an important out turn, given the rise in inflation and associated fall in real incomes. It remains to be seen whether the rebound in household sentiment survives the recent renewed depreciation of the JPY. Corporate sentiment is softer, though not particularly bad, either relative to history, or in the context of weakening corporate sentiment elsewhere in the region.