Japan's Economy: Monthly Outlook(Aug 2017)

◆In light of the 1st preliminary Apr-Jun 2017 GDP release we have revised our economic growth outlook. We now forecast real GDP growth of +1.9% in comparison with the previous year for FY17 (+1.5% in the previous forecast), +1.2% in comparison with the previous year for FY18 (+1.1% in the previous forecast). Overseas demand centering on exports to the US is expected to mark time, but Japan’s economy is expected to continue growth led by domestic demand in the future due to the following factors: (1) growth in consumption due to improved employment environment, and (2) investment in improving productivity.

◆Japan’s economy in FY2017 is expected to see three factors which were the cause of stagnation in personal consumption in the past dissipate. These include (1) elimination of the special case pension category, (2) increased tax and insurance burden for the working-age generation, and (3) reactionary decline following past economic stimulus measures. These factors will lose their negative effects in the near future, bringing in their stead positive factors for the outlook for personal consumption. Meanwhile, incentive to carry out capital expenditure oriented toward dealing with the worsening manpower shortage is growing stronger. Overall capital expenditure will likely gain support from investment in rationalization & labor saving for the purpose of improving productivity, as well as investments in research & development, and upgrading & renovation for the purpose of improving of earnings. However, by FY2018 the effect this will have in helping to increase consumption is expected to fall away, and the environment for capex is expected to mature. Hence the pace of growth will likely slow down gradually at that time.