Country Forecast Japan September 2017 Updater

Country Forecast Japan September 2017 Updater

  • September 2017 •
  • Report ID: 1698381 •
  • Format: PDF


  • Recent scandals have heightened uncertainties over the tenure of the prime minister, Shinzo Abe. However, The Economist Intelligence Unit believes that Mr Abe will retain his position as prime minister and leader of the ruling Liberal Democratic Party (LDP) until the next party leadership contest, which is scheduled for September 2018.
  • The next election for the House of Representatives (the lower house of parliament) must be held by December 2018, but we expect this to be called early in June or July. We continue to believe that the LDP will dominate the political scene regardless of who leads it throughout the forecast period.
  • The threat emanating from North Korea will encourage security co-operation between Japan and South Korea, but this is unlikely to lead to a broader improvement in diplomatic relations between the two countries.
  • The current and next government will continue to pursue an economic revival agenda in 2017-21. This will enable Japan to extend its span of economic growth, which will reach its sixth consecutive year in 2017.
  • Structural reforms will prove increasingly vital in the light of the waning impact and the limits of fiscal and open-ended monetary stimulus. We expect the government to succeed in implementing reforms in some areas, such as corporate governance, but these will do little to boost GDP growth over the medium term.
  • We do not expect the Bank of Japan (BOJ, the central bank) to achieve its 2% core inflation target in 2017-21. The BOJ will retain its ultra-loose policy settings in the early part of the forecast period, but we believe that it will be forced to scale back its quantitative easing programme from 2019, in the light of waning liquidity in the bond market, and "normalise" its policy settings thereafter. However, trends in economic activity or prices will not be strong enough to warrant a rise in the policy rate before 2021.
  • We forecast that real GDP will expand by an annual average of 1.1% in 2017-21, slightly slower than the 1.2% achieved in 2012-16. Demographic factors will act as the main constraint on potential GDP growth.
  • We expect Japan to post a current-account surplus equivalent to 4.6% of GDP on average in 2017-21. The primary income account will continue to record surpluses over the forecast period.






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