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

  • We remain convinced that the BoJ and government's inflationary policies are compounding the woes of the economy, rather than improving the growth outlook, and that there is little likelihood of these policies being pared back anytime soon. As such, a sustainable recovery is a long way off, and we caution that the weakness may be only just beginning.

  • The yen continues to look strong, benefitting from broad-based US dollar weakness, but we are growing increasingly cautious of BoJ intervention given recent appreciation. As such, we are neutral on the yen, but would see any move to JPY105.00/USD as an opportunity to establish a bearish position ahead of the next, and more aggressive, round of monetary stimulus.

  • Despite Prime Minister Shinzo Abe seemingly sticking to his plan to raise the consumption tax in 2017, there is still next to no appetite within the government to reduce the deficit, as an offsetting fiscal stimulus package is already in the works. With the budget deficit facing further pressure from a growing defence budget, there is little to be optimistic on regarding Japan's fiscal accounts.

  • Amid an otherwise poor economic picture, Japan's external accounts are in solid shape, due entirely to strong income account inflows stemming from the country's huge external assets. These external assets, in particular the USD1.25trn held at the BoJ in reserves, may provide an essential safeguard against potential economic and fiscal shocks.

  • The risk is that Japanese policymakers respond to the still-subdued rate of inflation by enacting more drastic inflationary policies, which could ignite an abrupt change in inflation expectations that would be very difficult to rein in. The longer inflation remains subdued in the near term, the greater the risk of considerable rise over the medium term.

  • The merger of the opposition Democratic Party of Japan (DPJ) with the smaller Japan Innovation Party (JIP) to form the Democratic Party on March 26 poses a medium term threat to the ruling Liberal Democratic Party (LDP). Despite the Democratic Party's lack of popular support at present, they could be set to capitalise on growing frustration with the LDP's economic stewardship.

Major Forecast Changes

  • We have revised our forecast for the Japanese yen slightly stronger due to broad-based US dollar weakness, but continue to see the Bank of Japan intervening to prevent significant yen strength. We have also written a new 10-year economic outlook assessing the potential for Japan's already-weak economic growth picture to deteriorate further.

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 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.

  • Furthermore, with continued high levels of government spending, a loss of confidence in the bond market could cause real interest rates return to positive territory in a rapid fashion, which could result in large numbers of bankruptcies and leave the government in a difficult position to finance its huge debt burden.

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 0.7
Nominal GDP, USDbn 4,599.1 4,122.1 4,497.7 4,574.5
Consumer price inflation, % y-o-y, eop 2.4 0.2 1.5 2.5
Exchange rate JPY/USD, eop 119.80 120.20 112.00 113.10
Budget balance, % of GDP -7.9 -7.8 -7.1 -7.2
Current account balance, % of GDP 0.5 3.3 2.7 2.5
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
Downbeat Growth Outlook Amid Growing External Risks
8
GDP By Expenditure Outlook
9
TABLE: GDP GROWTH FORECASTS
9
TABLE: PRIVATE CONSUMPTION FORECASTS
9
TABLE: GOVERNMENT CONSUMPTION FORECASTS
10
TABLE: FIXED INVESTMENT FORECASTS
10
TABLE: NET EXPORTS FORECASTS
10
Monetary Policy
10
Latest BoJ Move Adds To Inflationary Potential
10
Monetary Policy Framework
11
Fiscal Policy And Public Debt Outlook
12
Ambitious 2016 Budget Is Little Cause For Cheer
12
Structural Fiscal Position
14
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
14
External Trade And Investment Outlook
15
Terms Of Trade Windfall Boosts Savings But Not Investment
15
Outlook On External Position
15
TABLE: MAIN EXPORT AND IMPORT PARTNERS
16
TABLE: MAIN IMPORT AND EXPORTS
16
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
16
Currency Forecast
17
JPY: Bullish Case Growing Stronger
17
TABLE: BMI CURRENCY FORECAST
17
Chapter 2: 10-Year Forecast
21
The Japanese Economy To 2025
21
Three Barriers To Growth
21
TABLE: LONG-TERM MACROECONOMIC FORECASTS
21
Chapter 3: Political Outlook
25
SWOT Analysis
25
BMI Political Risk Index
25
Short-Term Political Outlook
26
July 2016 Upper HouseElection Crucial For Abe
26
TABLE: POLITICAL OVERVIEW
26
Long-Term Political Outlook
28
Abe And LDP Face Colossal Long-Term Challenges
28
Chapter 4: Operational Risk
33
SWOT Analysis
33
Operational Risk Index
33
Operational Risk
34
TABLE: DEVELOPED STATES - LABOUR MARKET RISK
34
TABLE: DEVELOPED STATES - LOGISTICS RISK
38
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK
40
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK
43
Chapter 5: BMI Global Macro Outlook
45
Global Macro Outlook
45
Unfinished Business In 2016
45
TABLE: GLOBAL ASSUMPTIONS
45
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
46
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
46
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
47
TABLE: JAPAN - MACROECONOMIC DATA & FORECASTS
49

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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