Fast Market Research recommends "Japan Business Forecast Report Q4 2013" from Business Monitor International, now available
Boston, MA -- (SBWIRE) -- 08/20/2013 -- Growth in Q113 came in at a stellar 4.1% but it remains to be seen if this will last. Indeed, while Prime Minister Shinzo Abe has promised much in terms of targets and goals, details of how the promised structural reforms will be accomplish remain unclear. At the same time, we see growing risks that the weakening yen, which has been a by-product of the aggressive monetary easing policies implemented by the Bank of Japan (BoJ), is beginning to adversely impact some parts of the economy. We once again highlight that both the central bank and government's policies are likely to weaken the fiscal accounts and confidence in the Japanese bond market.
With the Upper House elections due in July, we highlight that there is a risk that the ruling Liberal Democratic could leave structural reforms by the wayside and pursue the constitutional changes that it has been seeking to implement. While we believe that the party will fall short of gaining two-thirds of the seat it requires with its allies, any switch away from economic priorities could dissuade bond and equity market investors which, in turn, will weigh on economic growth.
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The massive changes in Japan's current account dynamics continue to push the country's current account balance towards zero and into the red beyond 2016. We have downgraded our expectations for the trade balance as we revised down our expectations for nuclear plant restarts. Furthermore, the pace of export recovery has been slow in Q113, which suggests that the trade deficit it likely to widen. We believe that while yen weakness provides some breathing room for exporters, many have changed their product mix and adopted other strategies which have reduced the upside from a weaker currency.
Long-term household savings rates will continue to decline as a progressively ageing society and a shift towards lower-paying contract (non-regular) employment forces more Japanese households to consume a greater proportion of their income. Consequently, this should place significant downward pressure on Japan's net international investment position, although a shift from positive to negative territory should take more than 30 years.
While post-earthquake reconstruction should result in higher loan demand in the short term, we believe the longer-term impact will be muted as the Japanese economic expansion remains anaemic. Moreover, we believe earthquake assistance should result in further increases in lenders' bond holdings, leading to greater industry exposure to mounting public debt risks.
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