House Oversight — Estate records
HOUSE_OVERSIGHT_014410
Japan Economics Viewpoint
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Japan Economics Viewpoint Ready for ignition 18 November 2016 Consensus underestimating GDP and inflation We are upbeat on Japan’s outlook and think consensus is underestimating the strength of medium-term GDP and inflation. We expect growth of 1.4% in CY2017 and 1.2% in CY2018, well above consensus of just 0.8% growth next year. For the first time in four years both monetary and fiscal policy are supporting growth. The combination of modestly higher commodity prices, a weaker yen, and a tightening output gap should drive Japan-style core inflation to 1.0% in CY2017, and 1.4% in CY2018. We expect the BoJ to keep its rate targets unchanged for the foreseeable future as inflation moves in the right direction. Fiscal and monetary policy realigning For years Japan has oscillated between loose and tight fiscal policy. Japanese policymakers now seem to be on the same page and we see little risk of another policy error. If anything, we see upside risks from greater fiscal stimulus via a third supplementary budget or a relatively aggressive FY17 ordinary budget. Meanwhile, the BoJ’s new interest-pegging regime ensures that financial conditions will become increasingly stimulatory as inflation rises. Economics Japan Izumi Devalier Japan Economist Merrill Lynch (Japan) +81 3 6225 6257 izumi.devalier@baml.com 2017 – a year of recovering domestic demand We think the economy is heading towards a cyclical sweet spot and see a broad-based recovery in domestic demand. Specifically, 1) consumption is poised to rebound as the saving rate peaks; 2) capex should accelerate in response to the improving demand outlook, deepening supply-side constraints, and “low-for-longer” real rates; and 3) increased efforts by policymakers to accelerate income redistribution could push up the velocity of money at the margin, helping to reflate the economy. Unauthorized redistribution of this report is prohibited. This report is intended for amanda.ens@baml.com Biggest risk factor: US policy uncertain […]