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4 Jan 2016
Japan: Return to steady recovery trend – Deutsche Bank
FXStreet (Delhi) – Mikihiro Matsuoka, Research Analyst at Deutsche Bank, forecasts the Japanese economy to return to underlying trend growth of real GDP at annualized 1.0-1.5% after a temporary soft patch in Q2 and Q3 2015.
Key Quotes
“We see low likelihood of meaningfully negative second-round effects from the global slowdown to domestic non-manufacturers despite an inevitable impact on the Japanese manufacturers.
Resiliency of non-manufacturing sector: Because the scale of the ongoing global economic slowdown from early 2015 is limited compared to the collapse of the IT bubble in 2000-2001 or the global financial crisis of 2007-08, we forecast a low likelihood of meaningfully negative second-round effects from the global slowdown to domestic non-manufacturers, thus leading to a recession, despite an inevitable impact on the Japanese manufacturers.
Predicting an expansion in domestic demand (mainly private consumption): Although we predict a return to an economic expansion with annualized growth of 1.0-1.5% from Q4 2015, this is likely to be driven not by exports but rather by domestic demand (in particular private consumption).
Little hope for an export recovery: We do not carry high hopes for exports to recover due to Japan-specific factors (continued outward foreign direct investment, low price elasticity for luxury goods exports, an exclusion of Japanese manufacturers from the global supply chain since the Great East Japan Earthquake) as well as a global factor, namely the shift to a closed economy regime (disappearance of growth frontiers: decline in benefits of international trade).
Not predicting additional monetary easing: Based on the facts that the BoJ at present is promising an almost open-ended easing with no set limit on the timeline and that the scale of the monetary base increase is an annual JPY80trn (16% of GDP), an overwhelming scale compared to other countries, we forecast monetary policy is likely to maintain the current easing stance (no more rounds of easing). Were the BoJ to enact additional monetary easing reluctantly, we believe this would only occur in the case of a sharp slowdown in the global economy, JPY appreciation, and a slump in share prices.
Japanese economy almost reaches its new steady state: We have reiterated several times that the new steady state of the Japanese economy since the introduction of QQE in April 2013 is 2% nominal GDP growth, 1% CPI inflation, 1% 10-year JGB yield, and 5% M2 growth. The Japanese economy has been in the transition process and seems to be very close to this new steady state.”
Key Quotes
“We see low likelihood of meaningfully negative second-round effects from the global slowdown to domestic non-manufacturers despite an inevitable impact on the Japanese manufacturers.
Resiliency of non-manufacturing sector: Because the scale of the ongoing global economic slowdown from early 2015 is limited compared to the collapse of the IT bubble in 2000-2001 or the global financial crisis of 2007-08, we forecast a low likelihood of meaningfully negative second-round effects from the global slowdown to domestic non-manufacturers, thus leading to a recession, despite an inevitable impact on the Japanese manufacturers.
Predicting an expansion in domestic demand (mainly private consumption): Although we predict a return to an economic expansion with annualized growth of 1.0-1.5% from Q4 2015, this is likely to be driven not by exports but rather by domestic demand (in particular private consumption).
Little hope for an export recovery: We do not carry high hopes for exports to recover due to Japan-specific factors (continued outward foreign direct investment, low price elasticity for luxury goods exports, an exclusion of Japanese manufacturers from the global supply chain since the Great East Japan Earthquake) as well as a global factor, namely the shift to a closed economy regime (disappearance of growth frontiers: decline in benefits of international trade).
Not predicting additional monetary easing: Based on the facts that the BoJ at present is promising an almost open-ended easing with no set limit on the timeline and that the scale of the monetary base increase is an annual JPY80trn (16% of GDP), an overwhelming scale compared to other countries, we forecast monetary policy is likely to maintain the current easing stance (no more rounds of easing). Were the BoJ to enact additional monetary easing reluctantly, we believe this would only occur in the case of a sharp slowdown in the global economy, JPY appreciation, and a slump in share prices.
Japanese economy almost reaches its new steady state: We have reiterated several times that the new steady state of the Japanese economy since the introduction of QQE in April 2013 is 2% nominal GDP growth, 1% CPI inflation, 1% 10-year JGB yield, and 5% M2 growth. The Japanese economy has been in the transition process and seems to be very close to this new steady state.”