Japan: Economic Outlook

- Growth has been a pleasant surprise
• "Growth in Japan has increased significantly again following the recession that ended in the second quarter of 2009. Exports, stock adjustment and strong private consumption via fiscal-policy stimulus have boosted the economy. Small signs even indicate that the recovery is about to spread to investment growth and ’real’ private consumption."
• "We raise our growth estimates for 2010 and 2011 to 3.3% and 1.9%, respectively."
- Unwinding temporary stimulus
• "The temporary stimulus measures are about to fade away. Exports are still expected to be supported by solid growth in the remaining Asia but are under pressure from the weaker euro and slower growth in the euro zone."
• "We expect that growth will be supported by investment in the second half of the year."
- The labour market is improving slightly
• "Unemployment has declined since it peaked, the number of job postings has increased, the job-perapplicant ratio is growing, etc. Wage increases have changed from a negative to a positive figure. It remains to be seen, whether the improvement is solid enough to boost private consumption, but there are small such indications."
- Deflation for some time yet
• "There are still many idle resources in the economy, and this will continue to put a downward pressure on prices. The pressure will abate gradually, but we do not expect positive inflation until late 2011. Consequently, interest-rate hikes will not be on the agenda until 2012 at the earliest."
- Political reforms are uncertain
• "The newly-inaugurated (June) Prime Minister Naoto Kan had announced that he would do an effort to deliver a surplus on the public finances in the course of a ten-year period and that he would take measures to increase the consumption tax and reduce corporate taxes, etc. In the election for the upper house on 11 July, the government lost its majority in the house, which may make it difficult to implement reforms although the government still has the majority in the more powerful lower house."
JyskeBank Japan Economic Outlook 20100715