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ECONOMY

Japan: Growth stable for the time being

Japan: Growth stable for the time being

Unemployment at two-decade low while industrial production has picked up

IFM Correspondent

January 6, 2017: It seems for Japan the pressure is off, for now. Despite the economy decelerating in the third quarter of 2016, Japanese firms appear to have benefitted from the strength of the yen in the early part of the year, says a report by HSBC.

Recent yen weakness is providing welcome relief for the Bank of Japan and removes the need for further monetary easing for the time being.  According to HSBC economists, a generous fiscal stimulus should help lift growth above 1% in 2017, but momentum could fizzle out thereafter unless public spending and tax cuts provide yet more support the following year.

Industrial production has picked momentum while investment by private companies appears to have stabilised. However, consumer spending continues to disappoint despite unemployment rate at an over two-decade low. As a result, the household saving rate has climbed sharply in recent years, something that will need to reverse if consumption is to fuel overall growth.

The report goes on to add that this essentially means that growth appears stable for the time being and should even pick up steam next year as the fiscal stimulus programme is implemented.

One prominent risk facing Japan in 2017 – along with other Asian and emerging market economies – is growing protectionism in the US, with possibly targeted action taken against Japanese exporters. On the positive side, however, an agreement between the EU and Japan to liberalise bilateral trade could help support exports.


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