Country Report Japan April 2009

Outlook for 2009-10

• The ruling Liberal Democratic Party (LDP) faces defeat at the parliamentary election that must take place by September, opening the way for the main opposition Democratic Party of Japan (DPJ) to take power.
• For differing reasons, there are pressures on the prime minister, Taro Aso, and the DPJ leader, Ichiro Ozawa, to step down. This means that both parties potentially face leadership elections in the run-up to the general election.
• Following two relatively small stimulus packages in 2008, the government is considering a vastly bigger stimulus package of 10trn-20trn (US$100bn-200bn, or 2-4% of GDP).
• The Bank of Japan (BOJ, the central bank) will keep the overnight call rate (OCR) at 0.1% throughout 2009. As the recession recedes in 2010, the BOJ will raise the OCR gradually to 0.5% by the end of that year.
• The deteriorating outlook for the global economy has led the Economist Intelligence Unit to make a further downward revision to its real GDP forecast for Japan in 2009 to a contraction of 6.4% (5.9% previously).
• As a result of the downward adjustment to our forecast for real GDP in 2009, we now expect consumer prices to fall by 1.5% this year, compared with a projected decline of 1.3% in our March report.

Monthly review

• Mr Aso's approval ratings remain at very low levels, but so far the loyaltyor, at least, the lack of overt disloyaltyof most of the LDP party leaders is allowing Mr Aso to cling to power.
• In early March a scandal broke involving Mr Ozawa's fundraising organisation which has the potential to destabilise the party and force his resignation as leader.
• The government is considering a third stimulus package, but parliamentary approval will be difficult to win, and the government must first secure passage of the budget for fiscal year 2009/10 (April-March).
• At its monetary policy meeting on March 17th, the BOJ stepped up the pace of monetary easing by announcing an immediate expansion of its monthly purchases of Japanese government bonds to 1.8trn, from 1.4trn.
• The collapse in Japan's exports in January caused the first monthly current-account deficit in 13 years.
• The recession is undermining the big commercial banks' business strategies, while also damaging regional banks, which are disproportionately exposed to small and medium-sized companies.

Source: Country Report

This report covers the following industry codes:
SIC Code: 39
NAICS Code: 31