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Japan Economic Forecast

Japan Economic Outlook

GDP growth is likely to be tepid in Q1 2023. On the one hand, investment is likely to rebound and consumer spending to accelerate compared to Q4 2022. New machinery orders grew at their fastest rate since October 2020 in January, beating market expectations, while both consumer confidence and the services PMI have averaged higher in the quarter thus far than in Q4. On the other hand, real merchandise exports were down 3.3% in January–February compared to Q4 2022, according to an estimate by Nomura, suggesting a weak external sector. In other news, the government unveiled a fresh USD 15 billion cost-of-living package on 22 March, which should support private spending. Meanwhile, Japan and South Korea held their first bilateral summit in 12 years in mid-March, signaling a warming of ties.

Japan Inflation

Inflation fell to 3.3% in February (January: 4.3%). Moreover, core inflation fell to 3.2% (January: 4.2%). Our panelists see inflation falling below the BoJ’s 2.0% target by Q3 2023, with the recent spike in inflation largely driven by cost-push factors. That said, recently higher-than-expected wage growth poses an upside risk.

Japan Economic Data

2017 2018 2019 2020 2021
Population (million) 126.7 126.5 126.2 125.8 125.5
GDP (USD bn) 4 5 5 5 5
GDP per capita (USD) 38 39 40 40 39
GDP (JPY bn) 553 556 557 539 549
Economic Growth (Nominal GDP, ann. var. %) 1.6 0.6 0.2 -3.4 1.9
Economic Growth (GDP, ann. var. %) 1.7 0.6 -0.4 -4.3 2.1
Domestic Demand (ann. var. %) 1.1 0.6 0.0 -3.4 1.1
Private Consumption (ann. var. %) 1.1 0.2 -0.6 -4.7 0.4
Government Consumption (ann. var. %) 0.1 1.0 1.9 2.4 3.5
Private Non-Residential Inv. (ann. var. %) 2.4 2.3 -0.7 -4.9 0.8
Government Investment (ann. var. %) 0.1 0.6 1.9 3.4 -1.9
Fixed Investment (ann. var. %) 1.6 0.6 0.5 -3.6 -0.1
Exports (G&S, ann. var. %) 6.6 3.8 -1.5 -11.6 11.7
Imports (G&S, ann. var. %) 3.3 3.8 1.0 -6.8 5.0
Industrial Production (ann. var. %) 3.1 1.1 -3.0 -10.3 5.6
Nominal Retail Sales (ann. var. %) 1.9 1.7 0.1 -3.4 2.0
Unemployment (% of active population, eop) 2.7 2.5 2.2 3.0 2.7
Unemployment (% of active population, aop) 2.8 2.4 2.4 2.8 2.8
Fiscal Balance (% of GDP) -3.4 -3.0 -3.6 -10.0 -7.2
Public Debt (% of GDP) 231.4 232.3 236.3 259.4 262.5
Inflation (CPI, ann. var. %, eop) 1.0 0.3 0.8 -1.2 0.8
Inflation (CPI, ann. var. %, aop) 0.5 1.0 0.5 0.0 -0.2
Inflation (Core, ann. var. %, eop) 0.8 0.8 0.8 -1.1 0.6
Inflation (Core, ann. var. %, aop) 0.5 0.9 0.6 -0.2 -0.2
Inflation (PPI, ann. var. %, aop) 2.3 2.6 0.2 -1.2 4.6
BoJ Policy Rate (%, eop) -0.10 -0.10 -0.10 -0.10 -0.10
TONAR (%, eop) -0.06 -0.06 -0.07 -0.03 -0.02
10-Year Bond Yield (%, eop) 0.05 0.00 -0.03 0.02 0.07
Stock Market (ann. var. of Nikkei 225, %) 19.1 -12.1 18.2 16.0 4.9
Exchange Rate (JPY per USD, eop) 112.7 109.7 108.7 103.2 115.2
Exchange Rate (JPY per USD, aop) 112.1 110.4 109.0 106.8 109.9
Current Account Balance (USD bn) 203 177 177 148 197
Current Account Balance (% of GDP) 4.1 3.5 3.5 2.9 3.9
Merchandise Trade Balance (USD bn) 44 13 -1 25 15
Merchandise Exports (USD bn) 687 736 697 629 748
Merchandise Imports (USD bn) 643 723 698 604 734
Merchandise Exports (ann. var. %) 8.7 7.0 -5.2 -9.8 19.0
Merchandise Imports (ann. var. %) 10.0 12.4 -3.5 -13.4 21.4
Foreign Direct Investment (USD bn) 9 10 14 11 25

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