Japan Business Forecast Report Q3 2013 - New Report Available

From: Fast Market Research, Inc.
Published: Thu May 30 2013

The Liberal Democratic Party's (LDP) return to power has lifted optimism of many, as seen in the impressive climb of the country's equity indices. We expect the aggressive policy action undertaken by both the government and the central bank to lift economic activity, as businesses and households move their spending forward to take advantage of subsidies. On these trends, we have upgraded our growth forecast for 2013 to 1.4%. That said, we believe the pickup in growth this year will be at the expense of growth further down the line, and continue to highlight increasing downside risks that accompany increased bond buying by the Bank of Japan (BoJ).

The latest slew of measures from the BoJ under the new governor Haruhiko Kuroda, while aggressive, in our opinion, pushes Japan on the road towards debt restructuring and monetisation. We expect that BoJ will succeed in raising price growth, as it has set out (although not meet its 2% target), and see this as dangerous given the pressure it places on government bond yields. We further highlight that with the government needing to refinance approximately 12% of its outstanding bonds for FY2013, its growing exposure to interest rate risks and waning demand could lead to a loss in confidence and a rush for the exits.

Full Report Details at
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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 was slow in Q113, which suggests that the trade deficit is likely to widen. We believe that recent sell-off in the Japanese yen has been overdone, as we see other factors that will instead encourage Japanese investors to increase investment at home.

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. Moreover, we believe earthquake assistance should result in further increases in lenders' bond holdings, leading to greater industry exposure to mounting public debt risks.

Major Forecast Changes

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Contact Name: Bill Thompson
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