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Japan's economy will gather steam after the second quarter provided the vaccine rollout picks up, but in the meantime exports could lend some support given strong demand, a former Bank of Japan chief economist has told MNI.

"The economy may contract in the second quarter due to the third state of emergency and self-imposed restrictions and Japan must rely on exports, which continue to be supported by strong demand for goods globally," Hideo Hayakawa, senior fellow at the Tokyo Foundation for Policy Research, said in a recent interview with MNI.

Hayakawa said that consumer demand is moving towards goods and away from services, in line with the global trend. "It is questionable whether the Japanese government can finish inoculating seniors by the end of July, but it will be completed by around August or September. Demand for services will recover in or after autumn," Hayakawa said.

He also said that conditions for eating and drinking services will remain difficult, which in turn will worsen conditions for their employees, but on a macro-economic basis, labour and income conditions will not deteriorate significantly.


Hayakawa said that the U.S. and UK economies are in the process of normalizing after the accelerated vaccine rollout and that pent-up demand for services there would provide a boost.

"The U.S. is trying to boost its potential growth rate through fiscal policy, and is fighting 'Japanification'. But I don't know whether the efforts will bear fruit," Hayakawa said. He added that Japan had tried to achieve the same goal with easy policy and failed. "Unless Japan implements bold fiscal policy aimed at accelerating structural reform and at boosting economic growth, it will not be able to increase the potential growth rate," and natural interest rates, Hayakawa said.

Turning to inflation in the U.S., he said the Federal Reserve does not have sufficient information to clearly assess price moves and will continue to take a wait-and-see attitude. "Officials have no choice but to say that the recent price rises are temporary," he said.

"Both Fed officials and market players see the same price data. Market players will factor in a tapering if they consider price rises as sustainable before the Fed flags its tapering," Hayakawa said.