Japan: Country Economic Forecast: 18 Apr 2013

Oxford Economics
April 18, 2013
11 Pages - SKU: OFE5027237
Countries covered: Japan

Activity data for Q1 were mixed. Industrial output growth was disappointing in January and February but the March manufacturing PMI reached the 50-mark for the first time since May 2012. Meanwhile, consumer spending held up quite well at the start of 2013, suggesting GDP growth of around 0.6% on the quarter. As 2013 proceeds we expect the economy to gather strength on the back of fiscal and monetary stimulus, the latter having been considerably increased at the Bank of Japan (BoJ) meeting in early April. We now expect GDP growth of 1% this year and around 2.5% in both 2014 and 2015. The significant weakening of the yen to nearly JPY100/US$ will support exports, and we expect a further depreciation to JPY114 by end-2015. Our forecast now also incorporates the new BoJ asset purchase plan, which will see its balance sheet increase by some 25% of GDP over the next two years. This will hold down interest rates and boost domestic spending. The BoJ is now targeting a 2% inflation rate. Our forecast suggests it will fall slightly short of this, but our new long-term inflation forecast of 1.6% pa is a significant upgrade from last month's figure of around 1%.

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