Japan Country Risk Report

Providing comprehensive data and in-depth analysis of political, financial and economic risk.

Report includes: BMI's Core Views, 10-year Forecasts, BMI's Economic Risk Index, Political Stability and Risk Index, Long-term Political Outlook, Operational Risk Index, SWOT Analysis and Structural Economic Sections

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  • Understand and measure the political, business environment and operational risks to your company
  • Gain insight on emerging trends that could support, strengthen or disrupt your activities in the market
  • Benefit from 10-year macroeconomic forecasts and insight into the structural characteristics of the economy
  • Get the long-term political outlook and explore possible scenarios for change
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Japan Country Risk Report
Product Price
$1,195.00

Core Views

  • The yen remains on an appreciating trend but with recent strength taking the currency into overbought and overvalued territory, the BoJ is unlikely to allow the currency to appreciate much further, and we hold a neutral near term view. The combination of weak growth and high inflation relative to the US should drive medium-term weakness, in spite of the country's huge external asset position.

  • Despite the strong Q116 real GDP growth figure, Japan's economy is unlikely to mount a sustainable recovery as the current policy mix continues to undermine productivity. The BoJ will continue to ease, likely cutting interest rates deeper into negative territory at its upcoming meeting, while fiscal stimulus spending will remain elevated, both to the detriment of private investment.

  • The Japanese government's decision to delay its proposed sales tax hike until late-2019 shows the lack of willingness by policymakers to take necessary but painful steps to rectify the country's fiscal imbalances. This, combined with the high likelihood of additional fiscal stimulus measures, will fail to support economic growth, increase government bond issuance, and necessitate a further expansion of quantitative easing. These developments will in turn give rise to growing inflationary pressures and a weaker Japanese yen over the medium term.

  • The recent rise in the yen has seen inflation expectations fall markedly. However, we continue to see medium term inflation pressures rising as the BoJ is forced to further expand its easing measures, leading to an acceleration in money supply growth, which is already growing at a solid pace.

  • The ruling Liberal Democratic Party-Komeito coalition looks set to perform solidly in the July 10 upper house elections, despite growing criticisms of the government. A clear coalition victory would reignite Prime Minister Shinzo Abe's 'Abenomics' reform programme, although Abe's advocacy of constitutional reform will remain highly divisive over the medium term.

Major Forecast Changes

  • We have revised our forecast for the Japanese yen stronger following the surge seen in the first half of 2016. However, we believe that this strength could ultimately cause the BoJ to redouble its efforts at generating long term inflation, and thus we maintain our bearish long term view on the currency.

Key Risks

  • The major risk to the Japanese economy comes from the potential for the Bank of Japan to step in to prevent further yen strength by rapidly increasing some form of money printing. This could come in the form of greater equity ETF purchase, deeper cuts to interest rates, or applying negative rates on certain loans to the banking system. This could trigger a sharp jump in inflation expectations as Japanese citizens may be less inclined to hold yen, particularly given the ongoing increase in the money supply.

  • The largest upside risk comes from the potential for Shinzo Abe to push through more structural reforms in the event that the LDP-led coalition gains a strong mandate in the upcoming upper house elections.

Macroeconomic Forecasts (Japan 2014-2017)
Indicator 2014 2015e 2016f 2017f
National Sources/BMI
Real GDP growth, % y-o-y 0.0 0.4 0.6 0.5
Nominal GDP, USDbn 4,599.1 4,122.1 4,707.8 4,900.4
Consumer price inflation, % y-o-y, eop 2.4 0.2 1.0 2.2
Exchange rate JPY/USD, eop 119.80 120.20 102.00 106.00
Budget balance, % of GDP -7.9 -7.8 -7.1 -7.2
Current account balance, % of GDP 0.5 3.3 2.7 2.4
Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks
5
Chapter 1: Economic Outlook
7
SWOT Analysis
7
BMI Economic Risk Index
7
Economic Growth Outlook
8
Economic Weakness May Be Only Just Beginning
8
GDP By Expenditure Outlook
9
TABLE: GDP GROWTH FORECASTS
9
TABLE: PRIVATE CONSUMPTION FORECASTS
10
TABLE: GOVERNMENT CONSUMPTION FORECASTS
10
TABLE: FIXED INVESTMENT FORECASTS
10
TABLE: NET EXPORTS FORECASTS
10
Fiscal Policy And Public Debt Outlook
11
No Appetite For Fiscal Retrenchment
11
Structural Fiscal Position
11
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
12
External Trade And Investment Outlook
12
External Position A Rare Bright Spot
12
Outlook On External Position
13
TABLE: MAIN EXPORT AND IMPORT PARTNERS
14
TABLE: MAIN IMPORT AND EXPORTS
14
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
14
Monetary Policy
15
Awaiting The Next Inflationary Move
15
Monetary Policy Framework
16
Currency Forecast
17
JPY: BoJ Will Intervene To Prevent Much Further Strength
17
TABLE: BMI CURRENCY FORECAST
17
Chapter 2: 10-Year Forecast
19
The Japanese Economy To 2025
19
Abenomics Hangover Only Just Beginning
19
TABLE: LONG-TERM MACROECONOMIC FORECASTS
19
Chapter 3: Political Outlook
23
SWOT Analysis
23
BMI Political Risk Index
23
Domestic Politics
24
New Opposition Party A Potential Medium Term Threat
24
TABLE: POLITICAL OVERVIEW
24
Long-Term Political Outlook
25
Abe And LDP Face Colossal Long-Term Challenges
25
Chapter 4: Operational Risk
29
SWOT Analysis
29
Operational Risk Index
29
Operational Risk
30
TABLE: DEVELOPED STATES - LABOUR MARKET RISK
30
TABLE: DEVELOPED STATES - LOGISTICS RISK
34
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK
37
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK
39
Chapter 5: BMI Global Macro Outlook
41
Global Macro Outlook
41
Emerging Markets Nearing Inflexion Point
41
TABLE: GLOBAL ASSUMPTIONS
41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
42
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
43
TABLE: MACROECONOMIC DATA & FORECASTS
45

Assess your risk exposure in Japan with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in Japan with confidence.

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