"Japan Business Forecast Report Q1 2014" now available at Fast Market Research

From: Fast Market Research, Inc.
Published: Mon Nov 18 2013

Japan's economy lost some steam in Q213, with growth coming in at 2.5% q-o-q in seasonally adjusted annualised terms compared with 3.8% in Q113. Despite this slight deceleration, the strong Tankan survey was enough comfort for Prime Minister Shinzo Abe to decide to allow the consumption tax hike to go ahead in April 2014, lifting the tax rate to 8.0% from the current 5.0%.

While we maintain our concerns with regards to the permanence of the effects and sustainability of Prime Minister Shinzo Abe's advocated policies, 'Abenomics', we highlight that the current political environment could further aggravate the debt situation. Even though period of a divided Diet has effectively ended since the Upper House elections in July, the Liberal Democratic Party (LDP) still requires the support of its minority coalition partner, New Komeito, to pass bills in the Upper House.

Full Report Details at
- http://www.fastmr.com/prod/713430_japan_business_forecast_report_q1_2014.aspx?afid=303

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. That said, signs of stability in fuel prices suggest that the trade deficit is likely to widen more gradually over 2014-16. However, the Olympics bid is likely to push up import requirements from 2017 to 2020, as the country ramps up its infrastructure build as the event draws closer.

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.

We remain concerned over the increasing pressures on longer-dated interest rates as inflation expectation grows, together with a greying population which suggests that deposits will decline over time. We maintain that the country's large stock of debt could be a destabilising force for the economy and the banking system, especially since its banks hold a significant portion of Japanese government bonds. Given that significant cuts to fiscal expenditures remain unlikely, a fiscal crisis looks increasingly unavoidable.

Major Forecast Changes

We have raised our forecasts for economic growth to come in at 1.8% in 2013, as Prime Minister Abe's policies are expected to encourage households to front-load their expenditures, especially with the consumption tax hike. This change in forecasts does not change our long-held view that Japan continues to edge closer to a fiscal crisis, and even more so now that the BoJ's actions suggests that it will more debt monetisation is in the pipeline, shaking the confidence of the market.

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Contact Name: Bill Thompson
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