Confidence in Japan Moves Up But Is Still Quite Weak

Japan has in progress a sharp rise in confidence over recent months. The rise in confidence is particularly sharp since February of this year. Most components were last higher in February 2022, over a year ago. For employment, willingness to buy durable goods, and for ‘the value of assets’ the last stronger observation is slightly more distant.

Despite a rise in confidence that is particularly notable over the past two months, there are still low standings for the level of confidence and for its components in April. The ‘all households’ confidence rank is in its 16.6 percentile; for two-person households, confidence is in its 19th percentile.

No components of confidence stand above their respective medians on data back to 2002. The strongest category is employment, with a 46-percentile standing. The weakest is the 7.2 percentile standing for ‘willingness to buy durable goods.’

As for momentum, the 3-month and 6-month changes in the headline as well as the component survey values are larger than the increase over 12 months for all categories except employment where the 12-month gain exceeds the gains over both 3-months and 6-months. That tells us that employment has been steadily improving while other components had seen most of their gains relatively recently. Apart from that, the 3-month change across components as well as for the headline, accounts for most of the gain in the various reading ranging from 81% to 94% of the six-month gain. In one case, for income growth, the three-month change is larger than the six-month change.

These comparisons highlight that much of the improvement in confidence is quite recent as the graphic underscores. That is true not just for the headline but for the various components as well.

The graphic shows that the current revival in confidence, while relatively sharp, is still short of the post-Covid peak in 2021 which itself was still quite short of getting back to the pre-Covid levels of confidence that had existed.

The rankings underscore that the current levels of confidence - improved as they are – are still quite a bit short of where they need to return levels back to normal.

The April confidence report builds on what were quite strong gains in March. It is very encouraging to see that a second gain can follow a relatively sharp gain. But it is still only a beginning....