Country Forecast Japan October 2017 Updater

Country Forecast Japan October 2017 Updater

  • October 2017 •
  • Report ID: 325693 •
  • Format: PDF


  • The Diet (parliament) has been dissolved and an early election is scheduled for October 22nd. The decision to hold a snap poll is a big gamble for the prime minister, Shinzo Abe, as he is at risk of losing the super-majority he enjoyed in the previous parliament. However, The Economist Intelligence Unit expects the Liberal Democratic Party to secure another term of office and remain the dominant political force over the forecast period (2018-22).
  • The disbanding of the main opposition Democratic Party has widened the ideological spectrum, ranging from the conservative Kibo no To (Party of Hope) to the long-serving Japan Communist Party. The political landscape will remain fluid, with a high risk that the Party of Hope could fracture.
  • 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 2018-22. 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 2018-22. 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 to "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 in 2020-22.
  • We forecast that real GDP will expand by an annual average of 1% in 2018-22, down from 1.2% in 2013-17. Demographic factors will act as the main constraint on potential GDP growth.
  • We expect Japan to post a current-account surplus equivalent to 4.4% of GDP on average in 2018-22. The primary income account will continue to record surpluses over the forecast period.


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