Overview:

• The Japanese economy regained its footing over 2016. GDP grew in each quarter of the year, the first time this has occurred since 2005. Indicators to date for 2017 are reasonably solid with fiscal policy and monetary policy likely to be supportive, and an improving global economy a positive for exporters. We expect growth in 2017 to be modestly above trend.
• Conditions are favourable for business investment with corporate profitability in good shape, and capacity shortages will also act as a spur. Consumer caution remains an issue. Japan’s labour market remains very tight with the unemployment rate at a low of 2.8%, but wages growth remains subdued.
• Despite the recent improvement, taking a medium term view, Japan remains a slow growth economy. This reflects its declining population and, like many other countries, a decline in productivity growth post the GFC.
• Monetary policy is expected to remain at its current, very loose, settings for an extended time, even with the Bank of Japan struggling to meet its inflation target. The medium term outlook for fiscal policy is more clouded.
• Japan recorded a merchandise trade surplus in 2016, the first since 2010. This helped raise the current account balance to JPY20.3tn. Besides the current account, Japan’s high level of FX reserves and net foreign asset position reveal a very strong external sector, which helps cement the Japanese Yen as a safe haven currency in times of geopolitical and financial stress.
• Uncertainty over the Trump administration are still around, in particular, US trade policy remains a downside risk although it appears contained for now.

For further details please see the attached document

• Japan Economic Outlook: May 2017 (PDF, 456kb)