China a risk for Japan’s breakthrough?

by: Maritza Cabezas , Roy Teo

150923_Japan_Watch.pdf (228 KB)

After a slow start this year, uncertainty related to the outlook for emerging markets will likely make consumers and corporates in Japan more cautious. A major concern for Japan’s export growth is the moderate growth in China. In light of developments, we are revising our GDP growth forecast to 0.7% from 1% in 2015, while in 2016 we expect GDP growth to be around 1%, down from 1.2%. This amounts to an even more modest recovery. We maintain our view that inflation will undershoot the BoJ’s 2% target, rising only to around 1% in 2016. We expect additional monetary easing early next year in order for the BoJ to move towards its inflation target, but there is a risk that this could be sooner if the economy fails to pick up as expected.