Signs of economic recovery intensifying(July 2013)

◆Signs of economic recovery intensifying: Effects of Abenomics have been steadily felt in Japan. The Bank of Japan (BOJ) revised its view on economy upward to “Japan’s economy is starting to recover moderately” on 11 July, the first affirmation of economic recovery in two and a half years. The government is likely to revise its assessment of the economy in the July Monthly Economic Report.

◆Main scenario for Japan’s economy: Japan’s economy slipped into recession after peaking in March 2012. It now appears to have hit bottom in November 2012 and to have bottomed out. It is expected to continue expanding, supported by (1) the recovery of foreign economies, (2) the continuation of reconstruction demand and a large-scale supplementary budget, and (3) the ongoing depreciation of the yen and the rise in stock prices accompanying the BOJ’s bold monetary easing. With regard to the last, we anticipate that the yen will gradually weaken against the US dollar. Also, in comparison to the real economy, it still cannot be said that stock prices are overvalued at their current levels.

◆Risks facing Japan’s economy: Risks that will need to be borne in mind regarding Japan’s economy are (1) a reigniting of the European sovereign debt crisis, (2) the worsening of Japan-China relations, (3) the US fiscal issue, and (4) a surge in crude oil prices stemming from geopolitical risk.