Country Report Japan

Outlook for 2008-09

• The ruling Liberal Democratic Party (LDP) is expected to call the next lower house election during September-November 2008, after Japan hosts the summit of the G8 group of developed countries on July 7th-9th.
• The centrepiece of Japan's foreign relations in the short term will be its hosting of the G8 summit in the northern island of Hokkaido. The government wishes to improve Japan's international standing with this event.
• An announcement regarding a rise in the consumption tax, probably to 7% (from 5% currently), will not be made until 2009 at the earliest, and any increase will not take effect before 2011.
• Given the economy's vulnerability to weak domestic demand and rising oil and commodity prices, the Bank of Japan (the central bank) will delay the next increase in its target for the overnight call rate until early 2009.
• The Economist Intelligence Unit has revised up its consumer price inflation forecast to an annual average of 1.1% in 2008-09, following upward revisions to our central forecast for fuel and commodity prices.

Monthly review

• A recent opinion poll has shown that only 18% of the public approve of the prime minister's performance. This followed a victory by the main opposition Democratic Party of Japan over the LDP in a by-election in late April.
• Recent political movements suggest a possibility of a major reorganisation of the political party system. With 63% of the electorate not supporting either the LDP or the DPJ, the probability for such change seems higher than previously.
• The government is preparing the Economic and Fiscal Reform (Basic Policies) 2008 report for publication in mid-June. The report is expected to keep a goal of balancing the primary budget by fiscal year 2011/12 (April-March).
• Foreign healthcare-sector workers from Indonesia and the Philippines could be accepted into Japan. The US and Japan have reached an agreement that allows Japan to send its surplus rice to other countries such as the Philippines.
• On May 16th the cabinet office released its preliminary estimates for real GDP growth in the first quarter of 2008. In January-March 2008 the economy expanded by 0.8% quarter-on-quarter.
• According to data published by the Ministry of Finance on May 22nd, year-on-year export growth (in yen terms) fell from the rate of almost 12% in 2007 as a whole to just 4% in April.