Country Forecast Japan April 2018 Updater

Country Forecast Japan April 2018 Updater

  • April 2018 •
  • Report ID: 469249 •
  • Format: PDF


  • The Economist Intelligence Unit expects the Liberal Democratic Party (LDP)-Komeito governing coalition to serve a full term, which expires in 2021, and to remain dominant in that year and beyond 2022. However, the possibility of the prime minister, Shinzo Abe, securing a third term as the leader of the LDP in September 2018, is threatened by political scandals.
  • The rapidly changing diplomatic situation around North Korea will force Japan to step up its co-ordination efforts with the US, but also to increase its security co-operation with South Korea. This is, however, unlikely to lead to broader improvement in diplomatic relations between South Korea and Japan, owing to historical issues.
  • The government will continue to pursue the broad thrust of its economic revival agenda in 2018-22. This will enable Japan to extend its span of economic growth, which by 2020 will have recorded its longest phase of expansion since the 1980s.
  • Structural reforms will prove increasingly vital in the light of the limits of stimulatory fiscal and monetary policy. We expect the government to succeed in implementing reforms in some areas, such as the electricity sector and 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. However, amid a sustained pick-up in economic activity and concerns over dwindling liquidity in the bond market, we believe that the BOJ will move towards tapering its quantitative easing programme from 2019, and to "normalise" its policy settings thereafter. The policy interest rate will, nevertheless, remain at -0.1% until 2020, before the central bank guides it to slightly above zero in 2021-22.
  • We forecast that real GDP will expand by an annual average of 1.2% in 2018-22, down from 1.3% in 2013-17. Demographic factors will act as a key impediment to a more rapid rate of economic expansion.
  • Japan will post a current-account surplus equivalent to 4.7% of GDP on average in 2018-22. The primary income account will continue to record surpluses over the forecast period.


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