Japan Economic Forecast

Japan Economic Outlook

December 20, 2019

The economy grew faster than initially estimated in the third quarter, according to a second GDP release. The improvement was due to upgraded estimates for the domestic economy, notably fixed investment. The external sector, however, continued to flag, likely weighed on by trade tensions with Korea and between the U.S. and China. Turning to the fourth quarter, economic activity appears to be waning given the PMI measuring private sector activity fell into contractionary territory in October and remained stuck there through December. Activity is likely being subdued by the sales tax increase from 8% to 10% that took effect in October; Typhoon Hagibis, which hit Japan in October; and continued trade tensions. To boost the economy, the government recently announced a USD 120 billion spending package, around 20% of which will be spent from December to March, and the rest from April 2020 to March 2021.

Japan Economic Growth

In 2020, economic growth is likely to slow notably, largely as the sales tax hike will constrain private consumption. Moreover, continuing trade tensions will weigh on the external sector. That said, the economy should benefit from ultra-low interest rates, spillovers from the 2020 Olympics and low unemployment. FocusEconomics panelists see the economy growing 0.4% in 2020, which is unchanged from last month’s forecast, and 0.8% in 2021.

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Japan Facts

Value Change Date
Bond Yield-0.02-4.41 %Dec 30
Exchange Rate108.7-0.35 %Jan 01

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