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
GDP Beat To Prove Temporary
8
TABLE: GDP GROWTH FORECASTS
10
TABLE: PRIVATE CONSUMPTION FORECASTS
10
TABLE: GOVERNMENT CONSUMPTION FORECASTS
10
TABLE: FIXED INVESTMENT FORECASTS
10
Fiscal Policy And Public Debt Outlook
11
Sales Tax Delay Another Blow To Economic Outlook
11
TABLE: NET EXPORTS FORECASTS
11
Structural Fiscal Position
13
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
13
External Trade And Investment Outlook
14
Declining Competitiveness No Major Threat To Current Account Surplus
14
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
14
Outlook On External Position
15
TABLE: MAIN EXPORT AND IMPORT PARTNERS
15
TABLE: MAIN IMPORT AND EXPORTS
15
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
15
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
16
Monetary Policy
17
Declining Inflation Expectations Unlikely To Last
17
Monetary Policy Framework
18
TABLE: MONETARY POLICY FORECASTS
18
Currency Forecast
19
JPY: Safe Haven But For How Much Longer-
19
TABLE: BMI CURRENCY FORECAST
19
Chapter 2: 10-Year Forecast
21
The Japanese Economy To 2025
21
Abenomics Hangover Only Just Beginning
21
TABLE: LONG-TERM MACROECONOMIC FORECASTS
21
Chapter 3: Political Outlook
25
SWOT Analysis
25
BMI Political Risk Index
25
Domestic Politics
26
Upper House Elections Crucial For Abenomics
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
Labour Market Risk
34
TABLE: DEVELOPED STATES - LABOUR MARKET RISK
34
Logistics Risk
37
TABLE: DEVELOPED STATES - LOGISTICS RISK
38
Crime And Security Risk
40
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK
41
Trade And Investment Risk
42
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK
43
Chapter 5:BMI Global Macro Outlook
45
Global Macro Outlook
45
Brexit Risk Casts A Long Shadow
45
TABLE: GLOBAL ASSUMPTIONS
45
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
46
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
47
MACROECONOMIC FORECAST
49
TABLE: 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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