Japan

Japan Economic Outlook

Japan Economic Outlook

Conditions for strong recovery finally in place

With the Delta wave having ebbed and the majority of the population now fully vaccinated, we expect a strong rebound in domestic demand over the coming months. But the inflation concerns that hang over other major developed economies won’t materialise and the Bank of Japan will keep policy loose for the foreseeable future.

7 October 2021

Japan Economic Outlook

Faster vaccine campaign allows rapid rebound

Japan’s lagging vaccine rollout has finally reached cruising speed, which should allow a rapid recovery in activity over the second half of the year. The labour market may soon be as tight as it was before the pandemic, but we expect this year’s jump in inflation to be short-lived. As such, the Bank of Japan will keep policy loose for the foreseeable future.

7 July 2021

Japan Economic Outlook

Economy to regain full health faster than most expect

Japan’s vaccine rollout has got off to a crawling start and a fourth wave of coronavirus infections is forming. Even so, we expect vaccines to allow domestic spending to rebound fully in the second half of this year. Our forecast that GDP will rise 3.6% this year is well above the analyst consensus of +2.8%.

8 April 2021
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Japan Economic Outlook

Vaccines to hasten recovery despite third virus wave

Japan is battling a third virus wave and is a laggard in the global vaccine rollout race. Even so, we expect economic activity to return to pre-virus levels in the second half of this year as vaccines become widely available. Our forecast that GDP growth will average 3.7% this year and 2.3% next year is well above the analyst consensus.

Japan Economic Outlook

Recovery could surprise to the upside

Japan’s success in containing the virus without imposing draconian restrictions on activity should enable a faster return to pre-virus levels of output than in many major economies. We expect GDP to rise by 3.5% next year, after this year’s 5.3% fall, and by 2% in 2022.

Japan Economic Outlook

Output set to remain below pre-virus level

Japan’s economic recovery has been threatened by a new wave of COVID-19 cases but the government probably won’t respond with drastic restrictions on activity. Output should therefore recover over the coming months, but social distancing measures and fears over infection will keep it below pre-virus levels. While underlying inflation should moderate, the Bank of Japan is unlikely to lower interest rates any further. The government has already introduced huge fiscal support to prevent bankruptcies and layoffs and it may provide additional measures to boost domestic demand over the coming months.

9 July 2020

Japan Economic Outlook

Output to fall more than during global financial crisis

Lockdowns will soon be imposed across much of Japan, triggering a decline of more than 10% in economic activity this quarter. The government’s latest fiscal package is intended to help firms stay afloat and to maintain employment while lockdowns are in place. But even with this support, the coronavirus outbreak will leave a legacy of persistent demand weakness that will put downward pressure on wages and prices for the next couple of years. Monetary policy is close to its limits, but the Bank of Japan may yet respond with a small further reduction in its policy rate.

Japan Economic Outlook

Growth to fall short of expectations

The sales tax hike has not been as damaging as many had feared. But we remain more pessimistic about the outlook for global growth and domestic investment than most. That explains why we expect GDP to contract by 0.2% this year rather than expand by 0.3% as anticipated by the analyst consensus. Even so, we expect the Bank of Japan to keep interest rates unchanged as capacity shortages remain pronounced. Markets have now come around to this view, having previously been pricing in cuts. The shift pushed up 10-year JGB yields but they are unlikely now to rise much further.

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