Japan's economy moving gradually toward recovery, but there are four risk factors which require attention(Oct 2014)

◆Japan’s Economy Moving Gradually Toward Recovery: As of October 7, 2014 the Cabinet Office revised its Assessment of Coincident Index downward from “leveling off” to “signaling a possible turning point” toward a downturn. Currently, DIR sees a 50% chance that Japan’s 2014 Jan-Mar period and after may be officially declared an economic downturn. However, even if an economic downturn is officially declared, we believe that this is merely a short-term adjustment, and that Japan’s economy should move toward a gradual recovery in the near future for the following reasons. (1) As of this point the negative effects of the increase in consumption tax have for the most part completed their cycle, and (2) There are positive factors influencing Japan’s economy in the near future, such as exports, mainly to the US, gradually getting back on track.

◆Four risk factors facing Japan’s economy: In this report we consider risk factors facing Japan’s economy. These include (1) stagnant personal consumption due to the decline in real income, (2) China’s shadow banking problem, (3) a surge in crude oil prices stemming from geopolitical risk, and (4) tumult in the economies of emerging nations in response to the US exit strategy.