The latest set of economic data out of Japan overnight has put renewed focus on expectations that new Prime Minister Fumio Kishida will unveil a sweeping new stimulus plan. One of Kishida’s main campaigning points was the need for a massive new round of economic stimulus to help bolster the economy as Japan continues to battle the COVID pandemic.
Private Consumption Drops
Overnight, the latest GDP figures showed that the Japanese economy shrank in Q3 by more than expected. The market was looking for a contraction of 0.2% on the prior quarter, however, the economy was seen shrinking by 0.8%, 4 times the expected downturn. Private consumption was seen lower by 4.5% on the year while capital spending fell by almost 15%. On the plus side, government spending rose almost 5%.
COVID Impact
The figures have raised fresh concerns over the impact of the renewed COVID restrictions brought in across the quarter as Japan fought the fourth wave of COVID. As with Australia, which also saw renewed lockdowns over the quarter, initial data suggests the impact was more meaningful than anticipated.
Eighth Quarterly GPD Drop
With this most recent decline in activity, the Japanese economy has now been contracting for eight consecutive quarters, highlighting the depth of the recession gripping the country. As with other parts of the world, the energy crisis and supply chain issues of recent months have added to the economic hardship facing the country. With this in mind, the country is now waiting on Kishida to unveil his new stimulus plan.
Stimulus Expectations
Last week, the Nikkei newspaper reported that the stimulus package being considered is set to total around 40 trillion JPY in measures including direct payments of 100,000 JPY to those 18 years old and younger in a bid to stimulate spending in the youth economy. Additionally, the package is also said to include increased pay rates for carers alongside relaxed tax levies for companies that increase wages, aiming to help stimulate wage growth which has been severely affected over the course of the pandemic.
NIKKEI Technical Outlook
The recent rally in the Nikkei has seen price breaking back above the 29464.9 level once again. However, the recent move higher has been labored with momentum studies flagging bearish divergence, suggesting risks of a reversal lower. Any break below 29464.9 will put the focus on support at the 28356.6 level. To the topside, 30502.8 is the next marker for bulls.
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