Japan

Monthly data for January and February suggest strong growth in the economy after a rather lacklustre Q4 2013. Industrial output in the first two months of the year was over 3% above the quarterly average of Q4 2013, with retail sales 1.7% higher…     

Japan

An acceleration in global trade helped to boost Japanese GDP growth to 1.7% in 2017. But an expected slowdown in demand from China in 2018 means that the contribution from external trade will be lower this year. And while we expect growth to continue to become more broad‐based, with investment playing a prominent role, given the recent increase in protectionist tensions, we have revised down our forecast for GDP growth in 2018 to 1.5% (from 1.7% three months ago). With an expected slowdown in construction and a planned consumption tax hike in 2019, we forecast that GDP growth will ease further to 0.9% next year. The short‐term outlook is influenced by the following factors:

• Export growth easing over 2018 : exports grew by 6.6% y/y in yen terms in January–February 2018 combined, down from 13% growth in Q4 2017. While the slowdown was less marked in volume terms, with real exports up 5.2% y/y and imports 7.8% higher (in January–February), we see a smaller contribution to growth from net trade in 2018 than in 2017, as external demand cools. The recent easing in export growth is in line with our expectations following last year's acceleration. Our baseline is for trade momentum to ease through 2018 as Chinese import demand moderates. While US protectionist measures threaten the outlook, we believe that the overall impact of the likely US tariffs will be limited, as Japanese trade continues to shift towards Asia.
• Solid investment growth to continue : we expect the momentum behind business investment to remain solid in 2018, with growth of 2.9% little changed from the 3% recorded in 2017. Overall investment will be supported by strong corporate profits, construction for the 2020 Tokyo Olympics and high levels of confidence. Although dropping among large enterprises recently, overall business sentiment (and among SMEs) remains healthy and planned capex for fiscal year 2018 got off to a good start. Protectionism is also a downside risk to the investment outlook, but we believe that the actual impact on Japan will be limited.
• Weak wage growth to weigh on consumer demand : monthly data suggest that consumption has continued to edge higher this year. Moreover, rising employment in Q1 may provide additional upside momentum. However, despite a tight labour market, wage growth has been disappointing and we expect sluggish wage growth to constrain household demand and inflation going forward.

     

Japan

The final Q2 GDP growth estimate was revised up slightly to 0.2% quarter‐on‐quarter. This was slightly higher than the initial estimate of zero but it still represents a slowdown from the 0.5% growth in Q1. Household spending held up better than projected. Private residential investment also surprised on the upside, surging 5% in the quarter, while public spending made another solid contribution to GDP growth. However, export volumes fell 1.5% on the quarter, with both goods and service exports falling.     

Japan

Data from Q2 point to a steep fall in GDP after April's consumption tax rise. The composite PMI was in contraction territory in April and May, and only just recovered to the 50 mark in June. Official data for retail sales and industrial output similarly show that spending and production were cut back in Q2. We estimate that GDP fell by 1.5% in Q2, driven by a reversal of Q1's strength in consumption and investment…     

Japan

The pandemic hit the economy extremely hard, causing a 7.9% q/q contraction in Q2 2020, the largest quarterly drop on record. Spending and activity have recovered after the state of emergency was lifted in late May and we expect a robust rebound in growth in Q3. That said, forward-looking indicators paint a mixed picture, so we expect the subsequent recovery to be uneven and protracted. On the political side, Yoshihide Suga succeeded Shinzo Abe as Prime Minister in mid- September and will likely continue to follow the policy path his predecessor charted. We forecast GDP to shrink 5.7% in 2020 before growing 2.5% in 2021 (compared to −6.0% and +2.8% previously).     

Japan

After the 0.3% contraction in GDP in Q2 the economy appears to have at least stabilised in Q3. Domestic demand growth is being offset by declining exports. A softer outlook for H2 means we have downgraded our 2015 GDP forecast to 0.6% (from 1% in July). For 2016 we now expect growth of 1.5% instead of 1.8%.     

Japan

So far this year the yen has risen by around 10% to ¥108 to the US dollar. On 8 April Finance Minister Aso said that Japan was ready to take “necessary steps to protect the economy from currency volatility”, although currency intervention was not explicitly mentioned. The hosting by Japan of a G7 summit in late May is a political obstacle to currency intervention before then.     

Japan

GDP grew by a solid 1.7% in 2017, supported by strongly expanding global trade. For this year, we expect growth to ease to 1.2%, dampened by slowing external momentum and weak domestic demand in Q1. Although GDP dropped 0.2% q/q in Q1, we expect this setback to be temporary and look for reasonable, broad‐based growth during the rest of 2018. Monthly indicators of consumption and trade look positive and suggest a recovery in Q2. The outlook for investment also remains broadly positive, although sentiment has moderated somewhat since the start of the year. Protectionism, particularly the threat of US tariffs on Japanese cars, remains a key downside risk for our forecast.     

Japan

Monthly indicators suggest that the momentum in exports and industrial production improved in Q1. And we expect a weaker currency and a gradually improving outlook for global trade – led by Chinese demand – to continue to help exports. Business investment is also set to improve, as corporate profits recover, albeit growth is likely to be bumpy given ongoing uncertainty surrounding President Trump's policies. Fiscal and monetary policy will remain supportive. With little evidence that elusive demand‐pull pressures will boost inflation, we expect BoJ to maintain its current monetary policy stance over 2017–18, while government infrastructure spending is set to rise.