Japan

Data from Q3 have been quite mixed, but on balance suggest that the fallout from April's sales tax hike has been worse than initially expected. The composite PMI reached a six‐month high of 52.8 in September, but the Cabinet Office's index of coincident indicators has continued to fall through Q3. On balance, we estimate that GDP was virtually flat in Q3. We thus now expect growth for 2014 as a whole to come in at 0.7%, down from 1.1% three months ago…     

Japan

Growth continues to struggle against an uncertain external outlook and weak domestic demand. While GDP in most of 2019 was supported by a pick-up in consumption spending ahead of last October's consumption tax hike, weak October and November data highlighted the possibility of a larger than expected fall in growth in Q4 2019. We expect GDP growth to slow to 0.3% in 2020 (after an estimated 1.0% in 2019), held back by a higher consumption tax, weak wage growth, and sluggish trade. That said, the 2020 Tokyo Olympics should provide modest support to spending and tourism. In 2021, we expect GDP to grow 0.8%.     

Japan

Growth continues to struggle against a background of weak exports and a deceleration in capex spending, given sluggish external demand and the ongoing slowdown in ICT. While GDP grew 0.6% q/q in Q1, we caution against seeing the strong print as cause for optimism, as falling imports were the key factor behind the unexpectedly robust outturn. With manufacturing still struggling and exports slowing further, we maintain our relatively cautious forecast of 0.5% GDP growth in 2019. In 2020, we now forecast GDP growth of just 0.2% due to the impact of the scheduled consumption tax hike in Q4.     

Japan

As a consequence of his personal triumph in the July elections, Mr. Nakasone's term as Prime Minister has been extended beyond October when on existing rules he was due to step down. This suggests no immediate change in the economic policy of liberalising markets, control of public spending and fiscal restructuring rather than simple demand expansion. It also implies that, notwithstanding the vociferous opposition of export-oriented industry, the case for a strong yen, as a means of re-orienting demand towards domestic markets and curbing the trade surplus, is accepted by the government. Thus, despite continuing pressure from the US, Japan did not cut its discount rate over the summer. Nevertheless, with the economy flat and forecasts for 198617 being downgraded, a package of measures is scheduled for this autumn.     

Japan

After a slowdown in growth in Q3, the indications are that activity picked up again in the final months of 2013 – especially on the consumer side. Retail sales rose 1.9% on the month in November, probably an early indication of ‘last minute’ demand building up ahead of April's planned rise in the consumption tax…     

Japan

Recent data suggest that economic growth remained uneven in Q4 2016. Monthly trade data imply the recovery in exports in Q3 has continued, with volumes up 4% on the year in October–November. The elevated number of housing starts suggests that residential investment remained firm. But offsetting these positives is the likelihood that business investment contracted for the second consecutive quarter, with the latest Tankan pointing to lower investment intentions amid weaker operating profits. Meanwhile, the recent deceleration in real earnings growth and subdued consumer confidence will have weighed on household spending.     

Japan

Monthly indicators suggest that the solid momentum in exports continued into Q2, with goods volumes up nearly 7% in April–May combined and evidence of a pick‐up in services exports. Business investment is also likely to have improved, with the latest Tankan survey showing a rise in investment intentions.     

Japan

Our outlook for domestic demand remains reasonably optimistic, notwithstanding recent financial market turmoil. A tight labour market and a pick‐up in wages will bolster consumption and incentivise investment in labour‐saving technology. Meanwhile, firms continue to expand capacity and raise R&D expenditure for new technologies, boosting investment. While growth in 2018 was set back by weather‐related contractions in Q1 and Q3, we expect demand to have rebounded in Q4 and look for GDP to have grown by 0.8% in 2018 as a whole. We expect growth of 1.0% in 2019 but just 0.3% in 2020, with the key drivers being:

• ? Robust labour market to support consumption: as the labour market continues to tighten, we expect household spending to continue to support growth in 2019. We project consumption to accelerate ahead of the scheduled rise of the consumption tax in Q4 2019, before falling back as the tax hike feeds through. However, given the stimulus measures planned by the government to soften the impact of the tax rise, we then expect consumption to show a faster recovery relative to previous consumption tax increases.
• ? Solid investment intentions despite rising uncertainty: business sentiment and investment intentions remain above historical averages and firms continue to expand capacity and increase R&D for new technologies, despite rising uncertainty over the durability of global economic momentum. And although softening recently, machinery orders remain high. Looking ahead, we expect investment growth to lose some momentum as the investment cycle begins to turn and global trade continues to ease.
• ? Low export growth to carry over into 2019: export volume growth has been weak of late, reflecting the softening in external demand. Import volumes have continued to grow at a robust pace, given solid domestic momentum. We expect export growth to remain weak going into 2019, in line with slowing global trade.
• ? Industrial production to continue growing: industrial output has recovered of late, after weather‐related disruption had weighed on growth earlier in 2018, while the PMI has remained stable at 52–53. We expect industrial production to continue growing in line with domestic demand, but slower than in previous years given less buoyant external prospects.
• ? No fiscal consolidation without economic revitalisation: the government is planning measures to support growth after the consumption tax rise in Q4 2019 including a diverse range of policies to incentivise consumption and an expansion of free childcare and education. It has also signalled that it stands ready to provide additional stimulus if needed.
• ? Monetary policy to stay put amid low inflation and falling bond yields: inflation has remained stagnant while 10‐year government bond yields fell into negative territory for the first time in two years, putting an end to speculation about monetary policy tweaks. With the consumption tax rise drawing closer, we do not expect the BoJ to move again any time soon.
• ? Equity sell‐off to prove temporary, but yen strength will persist: we expect current equity weakness to be temporary, but market volatility and more cautious Fed tightening indicate a stronger yen in 2019. Ongoing trade frictions and political attention on the exchange rate will also support the yen, which we see averaging 107 yen per US dollar in 2019.

     

Japan

After Q3 2015's eventual 0.3% quarterly growth rate, the economy appears to have maintained modest growth into Q4 according to the available monthly data. But a significant threat to the economy could arise from financial market volatility and consequent upward pressure on the yen. Since the US Federal Reserve raised interest rates on 16th December the yen has appreciated by 3% against the US dollar and by over 5% on a trade‐weighted basis.     

Japan

GDP likely contracted very sharply in Q2 2020 as household and business spending fell amid the state of emergency in effect from April to May. While we expect growth to bounce back in Q3 as activity and spending regain lost ground, the subsequent recovery will likely be very gradual as external demand stays weak and concerns over the virus linger. A renewed pick-up in infections and a return to restrictions on activity are downside risks. We forecast GDP to shrink 6% in 2020, before growing 2.8% in 2021.