Country Report Japan October 2017

Country Report Japan October 2017

  • October 2017 •
  • Report ID: 360766 •
  • Format: PDF

Outlook for 2018-22



  • The Economist Intelligence Unit expects the ruling coalition, led by the Liberal Democratic Party (LDP), to dominate the political scene in 2018-22, whether under the current prime minister, Shinzo Abe, or a different LDP leader.
  • 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.
  • Upward pressure on public spending, especially for social services, will intensify in 2018-22. The government will fail to achieve its goal of moving the primary budget balance into surplus by fiscal year 2020/21 (April-March).
  • The Bank of Japan (BOJ, the central bank) will maintain an ultra-loose mone-tary policy stance in the early part of the forecast period. However, we do not expect its 2% target for core consumer price inflation to be met in 2018-22.
  • We expect real GDP to grow by an annual average of 1% in 2018-22. This rate of expansion masks a relatively high degree of volatility, driven by anticipated economic slowdowns in China and the US, in 2018 and 2020 respectively.
  • The yen will appreciate against the US dollar over 2018-22. In 2018 this trend will be driven by the yen's safe-haven status, but a change in the country's monetary policy settings from 2019 will exert upward pressure.


Review



  • Mr Abe dissolved parliament on September 28th, paving the way for a snap election for the House of Representatives (the lower house of parliament) on October 22nd.
  • On September 28th the main opposition Democratic Party agreed to disband and join forces with a new political party, Kibo no To (Party of Hope). The latter is led by Yuriko Koike, the governor of the capital, Tokyo.
  • North Korea launched a ballistic missile over Japan's airspace in a test on September 15th. The test is the second of its kind in as many months.
  • On September 21st the US president, Donald Trump, met Mr Abe and the South Korean president, Moon Jae-in, on the sidelines of the UN General Assembly meeting in New York to discuss the North Korean issue.
  • On September 8th the Cabinet Office revised down real GDP growth in the second quarter of 2017 to 1.4% year on year (on a non-seasonally adjusted basis), compared with a provisional 2% increase published in August.
  • According to provisional data released by the Ministry of Finance, the value of merchandise exports surged by 18.1% year on year in August, while imports increased by 15.2%.


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