Country Report Japan October 2009

Outlook for 2010-11

• The resounding victory of the Democratic Party of Japan (DPJ) in the election to the House of Representatives (the lower house of parliament) on August 30th puts the party in a strong position to serve a full four-year term.
• There is also a good chance that the DPJ will win a majority in the election to the House of Councillors (the upper house) that is scheduled to take place in July 2010.
• The DPJ has stressed that Japan's alliance with the US will remain the cornerstone of Japan's foreign relations, but the DPJ will also want to put more emphasis on economic co-operation with its Asian neighbours.
• The DPJ has promised to increase welfare benefits and subsidies to farmers and to eliminate highway tolls, but much of this can be financed only by cutting many of the spending programmes of the former government.
• The Bank of Japan (the central bank) is expected to keep its main policy interest rate, the target for the overnight call rate, at 0.1% for the remainder of 2009 and throughout 2010.
• After an estimated contraction of 6.2% in 2009, the recovery in 2010 will be modest. Real GDP is forecast to increase by 1.3% in 2010 and 1.1% in 2011.
• The domestic corporate-goods price index was down by 8.5% year on year in August. This reinforces the Economist Intelligence Unit's view that Japan will experience further price deflation in 2010.

Monthly review

• Having triumphed in the lower house, the DPJ has formed a coalition with the Social Democratic Party and the People's New Party to consolidate its position in both houses of parliament.
• The former ruling party, the Liberal Democrat Party, appears set for a long spell in opposition. This raises the question whether it can survive as a single entity.
• The new government wants to restart the budgeting process for fiscal year 2010/11 (April-March). This task has been assigned to the nascent National Strategy Bureau.
• Industrial production showed a fifth consecutive month-on-month increase in July, although in year-on-year terms it was down by 23%.
• Unlike the manufacturing sector, where demand and output appear finally to be approaching stability, the real estate sector is still in dire straits.
• Japanese steel manufacturers are reaping some advantage from the newly expanding worldwide demand for inputs for infrastructure projects.

This report covers the following industry codes:
SIC Code: 53;59;65
NAICS Code: 44;53