Asia > Eastern Asia > Japan > Japan Outlook for 2013-14

Japan: Japan Outlook for 2013-14

2013/05/15

The country (Japan) is situated in Eastern Asia, island chain between the North Pacific Ocean and the Sea of Japan, east of the Korean Peninsula.
Land in Japan is frequently rugged and mountainous.

The climate is from tropical in south to cool temperate in north. Japanese (singular and plural) speak Japanese.

Overview

Popular support for the newly elected Liberal Democratic Party (LDP) government remains strong, suggesting that it is likely to win the upper home election in July and to serve a full four-year term. Should the LDP emerge with a majority in the upper home, Shinzo Abe will be able to consolidate his position as prime minister and press ahead with the additional hawkish elements of his schedule. Relations with China are expected to remain fraught in 2013-17, as Japan seeks to retain its strategic influence in Asia and to maintain the primacy of its alliance with the US. Despite the government's determination to end deflation and boost the economy, the underlying problems contributing to the slow rate of GDP increase in recent decades-such as unfavourable demographic trends and the disorderly national of the public finances-will not disappear. The Economist Intelligence Unit expects economic increase to average 1.3% annually in 2013-17.

Political outlook

In March the Japanese government announced that it would join negotiations between Asia-Pacific nations to expand the Trans-Pacific Partnership (TPP) free-trade grouping. So bold a move formerly the upper home election reflects Mr Abe's increasing confidence that the LDP, with its junior partner, New Komeito, will prevail in the poll.

Economic policy outlook

Haruhiko Kuroda became governor of the Bank of Japan (the central bank) on March 20th. He is likely to oversee bolder measures to break Japan's deflationary cycle and boost anaemic economic increase.

Economic forecast

We have revised up our estimate for GDP increase in 2013 to 1.1%, from 0.9% formerly. This reflects revised national-accounts data for the fourth quarter of 2012 that show a small rise in GDP, rather than the expected slight fall. The revision as well incorporates the impact of improving confidence on investment and private consumption.


Outlook for 2013-17

  • Popular support for the Liberal Democratic Party (LDP) government remains strong. The LDP's chances are thus good that it will win control of the upper home in the July poll for that chamber and will complete its four-year term.
  • Should the LDP emerge with a majority in the upper home in July, Shinzo Abe will be able to consolidate his position as prime minister and press ahead with the additional hawkish elements of his schedule.
  • Relations with the US are likely to improve as a result of the success of a bilateral summit held in February and Mr Abe's determination to rebuild Japan's strategic alliance with the US.
  • Although a diplomatic solution to Japan's dispute with China over the Senkaku islands (known as Diaoyu in China) may from instantly on be possible, the risk of a military clash will persist in the absence of a compromise.
  • The new governor of the Bank of Japan (BOJ), Haruhiko Kuroda, is committed to doubling the size of the monetary base over the next two years in an effort to achieve the bank's 2% inflation target.
  • The Economist Intelligence Unit has raised its GDP increase estimate to reflect the positive impact of the weaker yen on Japan's net exports. Expected GDP increase has been revised up to 1.2% in 2013, 2.1% in 2014 and 1.6% in 2015.
  • Consumer price inflation will return during the course of 2013, and will accelerate in 2014-15 as the yen remains weak and as increases in the consumption tax rate take result.

Review

  • On April 12th the government announced that it had reached agreement with the US on plans for Japan to join negotiations on the Trans-Pacific Partnership (TPP), a broad-based inter-regional free-trade agreement.
  • As tensions mounted owing to North Korea's bellicose rhetoric, on April 6th Japan placed its Self-Defence Forces on standby to shoot down any missiles launched by the North should they enter Japanese air space.
  • At its monetary policy conference on April 4th, the BOJ launched a programme of bond buying that is unlimited in terms of either amount or duration, in an amount-out effort to end deflation in Japan.
  • The yen fell sharply following the BOJ's new policy conference, but it has managed to remain on the stronger side of the ¨ï100:US$1 barrier.
  • The degree of pessimism reported by Japanese businesses diminished in the prime quarter of 2013 in response to looser monetary policy and the weaker yen, according to the BOJ's Tankan survey.
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