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	<title>Japan's Economic Outlook (Quarterly) | The Daiwa Institute of Research</title>
		<link>https://www.dir.co.jp/english/research/report/jquarterly/index.html</link>
		<language>en</language>

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			<title>Reciprocal Tariffs Lead to Downward Revision of Economic Outlook for Japan, US, Europe, and China</title>
			<link>https://www.dir.co.jp/english/research/report/jquarterly/20250414_025034.html</link>
			<pubDate>Mon, 14 Apr 2025 14:10:00 +0900</pubDate>
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    ◆The Trump administration in the US announced ‘reciprocal’ tariffs on April 2. The reciprocal tariff rates are set at high levels, with Japan at 24%, the EU at 20%, and China at 34%, and there is a high probability that this will have a significant impact on the economies of each country and region, including the US. For this reason, we have revised our economic outlooks downward for Japan, the US, Europe, and China.

◆Our new outlook for the real GDP growth rate on a y/y basis in 2025 is +1.0% for Japan (down 0.4%pt in comparison to the previous outlook), +1.1% for the US (down 0.6%pt), +0.7% for the Eurozone (down 0.4%pt), and +3.9% for China (down 0.6%pt). (Japan is expected to grow by +0.8% y/y on a fiscal year basis). Although there has been a slight downward revision for 2026, there is a strong sense of uncertainty about the future of the US tariff policy and retaliatory tariffs in various countries and regions, and it cannot be ruled out that the United States could fall into a recession.

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			<title>Japan’s Economic Outlook No. 208 Update (Summary)</title>
			<link>https://www.dir.co.jp/english/research/report/jquarterly/20210310_022153.html</link>
			<pubDate>Wed, 10 Mar 2021 10:00:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆Real GDP Outlook: FY2020 -4.9%, FY2021 +3.7%, and FY2022 +2.3%: The main scenario of this outlook assumes that economic activity will increasingly return to normal beginning in latter half of FY2021 and throughout FY2022 with vaccinations having begun both overseas and in Japan. The outlook for real GDP growth is -4.9% in FY2020, +3.7% in FY2021, and +2.3% in FY2022. We expect growth on the high side in FY2021 and FY2022 due to progress in vaccination and the improved outlook for the US economy. However, the risk of the spread of COVID-19 infections is expected to remain great for some time, and there is a real possibility that an extension or reissuance of a state of emergency could be unavoidable. If a highly infectious mutant strain begins to spread and vaccination progresses at only a moderate pace, the outlook for real GDP growth in FY2021 will deteriorate significantly to -0.2%. The number of deaths nationwide in the same fiscal year would reach about 9,000, and it is expected that the number of suicides due to economic hardship would also increase significantly.

◆(1) Challenges faced by Japan in international comparison of decarbonization policies: CY2020 was a year of great social and economic turmoil due to the coronavirus crisis, but it was also a year in which countries made more concrete plans to strive toward the realization of decarbonization. In Europe, the Next Generation EU, a large fund for reconstruction, is expected to accelerate green investment, while in the United States, President Biden has set a goal of achieving decarbonization by 2050, having made an election promise to invest $2 tril in the effort over the president’s term of four years. This trend of international decarbonization highlights Japan's challenges such as the increasing risk of protectionist policies, the need for early development of new industries, and the question of how to handle the Carbon Border Adjustment Mechanism. In Japan’s efforts to transform its industrial structure toward the realization of decarbonization, problems in the labor market, such as the slowness of employment adjustment, and the lack of sufficient government spending on labor market policy, will be issues in the future. 

◆(2) How vaccine dissemination could change the export environment, transformed by the corona-disaster: Global trade in goods was reduced significantly during the year 2020 due to the corona-disaster, but China’s share of global trade grew rapidly as a result of the emergence of special demand for goods associated with measures to prevent the spread of COVID-19 and the new trend of working from home. While dependence on China for exports of goods related to measures to prevent the spread of COVID-19 has been weakening of late, demand for information related goods is expected to maintain underlying strength backed by the expansion of telework and its having firmly taken root in Japan, as well as efforts towards digitalization. China's export share in 2021 will settle at a level slightly higher than before the spread of the infection. Japan’s exports of goods are expected to continue their recovery trend as overseas economies move toward normalization. Above all, a recovery for US manufacturing will be key to this development. As for the export of services, there should be a rapid recovery in 2022 as vaccination progresses and restrictions on immigration are relaxed, allowing for growth in the number of tourists visiting Japan from China, the US and the UK. 

◆(3) The problem of post-corona debt: The worldwide balance of debt has grown rapidly during the corona-disaster, and government debt has been the leader in this growth. The sustainability of government debt is supported by low interest rates, hence the future trend in interest rates is an important point. On the other hand, private sector debt does not pose a risk for the time being, though in certain countries, it has already reached a level which should cause concern. We recommend paying close attention to policy changes in the future as the global economy moves toward normalization. There is some tail risk here, for if the FRB’s reduction in monetary easing causes a stir in the market, this could trigger capital outflows from the emerging nations. Most of the emerging nations have increased their resistance to capital outflows due to the experiences of the past, but there are still concerns regarding those countries that are more susceptible to crisis, such as Argentina, Turkey, and Kazakhstan.

◆BOJ’s monetary policy: During the period covered by this outlook, the CPI is expected to register year-to-year declines in FY2020, but then shift into the positive area at +0.7% y/y due to economic recovery and an expected rise in the price of crude oil in FY2021. The CPI will likely rise by +0.8% in FY2022. With the spread of COVID-19 expected to continue for the long-term, the trend in prices is expected to be moderate. Hence we expect the BOJ to gradually reduce its coronavirus crisis policy a step at a time, while at the same time maintaining its monetary easing policy for some time.

◆Our assumptions 
Public works spending is expected to grow by +4.8% in FY20, +1.8% in FY21, and +1.0% in FY22.
We see an average exchange rate of Y106.0/$ in FY20, Y108.0/$ in FY21, and Y108.0/$ in FY22.
US real GDP growth is seen at +5.7% in CY21 and +4.1% in CY22.

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			<title>Japan’s Economic Outlook No. 208 (Summary)</title>
			<link>https://www.dir.co.jp/english/research/report/jquarterly/20210304_022131.html</link>
			<pubDate>Thu, 04 Mar 2021 09:00:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆Real GDP Outlook: FY2020 -5.0%, FY2021 +3.8%, and FY2022 +2.3%: The main scenario of this outlook assumes that economic activity will increasingly return to normal beginning in latter half of FY2021 and throughout FY2022 with vaccinations having begun both overseas and in Japan. The outlook for real GDP growth is -5.0% in FY2020, +3.8% in FY2021, and +2.3% in FY2022. We expect growth on the high side in FY2021 and FY2022 due to progress in vaccination and the improved outlook for the US economy. However, the risk of the spread of COVID-19 infections is expected to remain great for some time, and there is a real possibility that an extension or reissuance of a state of emergency could be unavoidable. If the mutant strain of the disease spreads in Japan, the number of deaths in FY2021 is expected to grow by about 4,800 compared to the main scenario, while personal consumption is expected to decline by about 24 tril yen. Even if the mutant strain does not spread, there is still a possibility that a state of emergency could be declared again sometime in FY2021 if the pace of vaccination is slower than expected. 

◆(1) Challenges faced by Japan in international comparison of decarbonization policies: CY2020 was a year of great social and economic turmoil due to the coronavirus crisis, but it was also a year in which countries made more concrete plans to strive toward the realization of decarbonization. In Europe, the Next Generation EU, a large fund for reconstruction, is expected to accelerate green investment, while in the United States, President Biden has set a goal of achieving decarbonization by 2050, having made an election promise to invest $2 tril in the effort over the president’s term of four years. This trend of international decarbonization highlights Japan's challenges such as the increasing risk of protectionist policies, the need for early development of new industries, and the question of how to handle the Carbon Border Adjustment Mechanism. In Japan’s efforts to transform its industrial structure toward the realization of decarbonization, problems in the labor market, such as the slowness of employment adjustment, and the lack of sufficient government spending on labor market policy, will be issues in the future. 

◆(2) How vaccine dissemination could change the export environment, transformed by the corona-disaster: Global trade in goods was reduced significantly during the year 2020 due to the corona-disaster, but China’s share of global trade grew rapidly as a result of the emergence of special demand for goods associated with measures to prevent the spread of COVID-19 and the new trend of working from home. While dependence on China for exports of goods related to measures to prevent the spread of COVID-19 has been weakening of late, demand for information related goods is expected to maintain underlying strength backed by the expansion of telework and its having firmly taken root in Japan, as well as efforts towards digitalization. China's export share in 2021 will settle at a level slightly higher than before the spread of the infection. Japan’s exports of goods are expected to continue their recovery trend as overseas economies move toward normalization. Above all, a recovery for US manufacturing will be key to this development. As for the export of services, there should be a rapid recovery in 2022 as vaccination progresses and restrictions on immigration are relaxed, allowing for growth in the number of tourists visiting Japan from China, the US and the UK. 

◆(3) The problem of post-corona debt: The worldwide balance of debt has grown rapidly during the corona-disaster, and government debt has been the leader in this growth. The sustainability of government debt is supported by low interest rates, hence the future trend in interest rates is an important point. On the other hand, private sector debt does not pose a risk for the time being, though in certain countries, it has already reached a level which should cause concern. We recommend paying close attention to policy changes in the future as the global economy moves toward normalization. There is some tail risk here, for if the FRB’s reduction in monetary easing causes a stir in the market, this could trigger capital outflows from the emerging nations. Most of the emerging nations have increased their resistance to capital outflows due to the experiences of the past, but there are still concerns regarding those countries that are more susceptible to crisis, such as Argentina, Turkey, and Kazakhstan.

◆BOJ’s monetary policy: During the period covered by this outlook, the CPI is expected to register year-to-year declines in FY2020, but then shift into the positive area at +0.4% y/y due to economic recovery and an expected rise in the price of crude oil in FY2021. The CPI will likely rise by +0.8% in FY2022. With the spread of COVID-19 expected to continue for the long-term, the trend in prices is expected to be moderate. Hence we expect the BOJ to gradually reduce its coronavirus crisis policy a step at a time, while at the same time maintaining its monetary easing policy for some time.

◆Our assumptions 
Public works spending is expected to grow by +4.7% in FY20, +1.9% in FY21, and +1.1% in FY22.
We see an average exchange rate of Y105.7/$ in FY20, Y105.0/$ in FY21, and Y105.0/$ in FY22.
US real GDP growth is seen at +5.8% in CY21 and +4.1% in CY22.

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			<title>Prospects for Japan’s Economy with a View to the Post-Corona Era: In this Report We Examine the Following Issues. (1) US Presidential Election, (2) Digitalization, and (3) Economic Measures (No. 207 Update)[Summary]</title>
			<link>https://www.dir.co.jp/english/research/report/jquarterly/20201210_021954.html</link>
			<pubDate>Thu, 10 Dec 2020 14:00:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆Real GDP Outlook: FY2020 -5.3%, and FY2021 +3.4%: The real GDP growth rate for the Jul-Sep period achieved major positive growth at +22.9% q/q annualized, but growth made up for only around 60% of the previous period’s decline. Meanwhile, the pace of recovery from the Oct-Dec period is expected to be moderate at best. The main scenario of this outlook assumes that measures to prevent the spread of COVID-19 will continue to be implemented to a degree, with the outlook for the CY2021 real GDP growth rate at +2.3%. However, explosive spread of  COVID-19 infections has been occurring recently, and possibilities that a declaration of a state of emergency and lockdown orders of the kind that occurred during the months of April and May this year will become unavoidable are increasing rapidly both in Japan and abroad. Our risk scenario is based on the assumption that explosive spread of COVID-19 infections will occur twice in Japan, the US and Europe in the first and second halves of 2021. In this case, the CY2021 real GDP growth rate is expected to be at -0.4%. If this occurs, there is a danger that it could cause a sharp increase in the number of corporate bankruptcies, ultimately developing into a financial crisis. Although the probability is low at this time, if a financial crisis along the lines of the Great Depression were to occur, the real GDP growth rate of CY2021 could deteriorate to as low as around -7%.
◆(1) Effects of a New Biden Administration on Japan’s Economy: While President-Elect Biden has pledged to raise taxes, he has suggested large-scale fiscal spending and is generally aiming for an economic stimulus policy. However, congress is expected to remain split, and it will likely be difficult to realize such a policy with the opinions of the Democratic and Republican parties in conflict. Fiscal policy is expected to boost US GDP by an average of +0.5% between 2022 and 2025. The impact on Japan's real GDP is expected to be +0.33% in 2022, +0.54% in 2023, and +0.61% in 2024. However, under the Biden administration, procurement from within the United States will be emphasized in government spending, so the impact on the Japanese economy may be limited. Furthermore, it is necessary to keep in mind the possibility that Mr. Biden's tightening of regulations may have a negative impact on the US and Japanese economies due to the possible worsening of corporate sentiment.
◆(2) Economic Revitalization through Digitalization, and its Challenges: Digitalization of government services is still inadequate in areas that lead to improvements in the business environment. There are many issues related to the Japanese business environment that can be solved by digital technology. If digitalization is actively promoted with the Digital Agency (tentative name) as the control tower and these issues are resolved, the real GDP growth rate per capita may increase by about 1.1%pt. Meanwhile, if the business environment is improved to the maximum while implementing regulatory reforms, the rate of increase will increase to 1.6%pt. In addition, the digitalization of government guidance will lead to the strengthening of the household safety net and the improvement of the quality of government services. The need for a stronger infrastructure will become even more necessary in the future for managing income information of Japanese citizens and bank accounts by linking them to the Social Security and Tax Number system.
◆(3) Effective Economic Measures: Japan's economic measures during the Corona Disaster were implemented more quickly than during the global financial crisis of 2008, and so far they have achieved results as notable in an international comparison. Among the policy choices envisioned for additional economic measures, including the upcoming third supplementary budget, the various "Go To Campaigns" focus on industries with harsh business environments, with relative production spillover and large employment-inducing effects. Extension of the implementation period for economic measures will likely require thorough measures to prevent the spread of COVID-19 infections.
◆BOJ’s monetary policy: During the period covered by this outlook, CPI is expected to register year-to-year declines in FY2020 and FY2021. With economic recovery dragging its feet, a strong need for support of corporate financing is expected to continue. Hence we expect the BOJ to maintain its current monetary easing policy, with additional easing measures taken as necessary.
Our assumptions
◆Public works spending is expected to grow by +3.7% in FY20, and +1.0% in FY21.
◆We see an average exchange rate of Y105.6/$ in FY20, and Y104.0/$ in FY21.
◆US real GDP growth is seen at -3.6% in CY20 and +3.7% in CY21.

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			<title>Japan’s Economic Outlook No. 207 (Summary)</title>
			<link>https://www.dir.co.jp/english/research/report/jquarterly/20201126_021925.html</link>
			<pubDate>Thu, 26 Nov 2020 16:00:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆Real GDP Outlook: FY2020 -5.5%, and FY2021 +3.2%: The real GDP growth rate for the Jul-Sep period achieved major positive growth at +21.4% q/q annualized, but growth made up for just over half of the previous period’s decline. Meanwhile, the pace of recovery from the Oct-Dec period is expected to be moderate at best. The main scenario of this outlook assumes that measures to prevent the spread of COVID-19 will continue to be implemented to a degree, with the outlook for the CY2021 real GDP growth rate at +2.0%. However, explosive growth in COVID-19 infections has been occurring recently, and possibilities that a declaration of a state of emergency and lockdown orders as occurred during the months of April and May this year will be unavoidable are increasing rapidly both in Japan and abroad. Our risk scenario is based on the assumption that explosive growth in COVID-19 infections will occur twice in Japan, the US and Europe in the first and second halves of 2021. In this case, the CY2021 real GDP growth rate is expected to decline by -0.8%. If this occurs, there is a danger that it could cause a sharp increase in the number of corporate bankruptcies, ultimately developing into a financial crisis. Although the probability is low at this time, if a financial crisis along the lines of the Great Depression were to occur, the real GDP growth rate of CY2021 could deteriorate to as low as around -8% y/y. 

◆(1) Effects of a New Biden Administration on Japan’s Economy: While President-Elect Biden has pledged to raise taxes, he has suggested large-scale fiscal spending and is generally aiming for an economic stimulus policy. However, congress is expected to remain split, and it will likely be difficult to realize such a policy with the opinions of the Democratic and Republican parties in conflict. Fiscal policy is expected to boost US GDP by an average of +0.5% between 2022 and 2025. The impact on Japan's real GDP is expected to be +0.33% in 2022, +0.54% in 2023, and +0.61% in 2024. However, under the Biden administration, procurement from within the United States will be emphasized in government spending, so the impact on the Japanese economy may be limited. Furthermore, it is necessary to keep in mind the possibility that Mr. Biden's tightening of regulations may have a negative impact on the US and Japanese economies due to the possible worsening of corporate sentiment.

◆(2) Economic Revitalization through Digitalization and Challenges: Digitization of government services is still inadequate in areas that lead to improvements in the business environment. There are many issues related to the Japanese business environment that can be solved by digital technology. If digitalization is actively promoted with the Digital Agency (tentative name) as the control tower and these issues are resolved, the real GDP growth rate per capita may increase by about 1.1% pt. Meanwhile, if the business environment is improved to the maximum while implementing regulatory reforms, the rate of increase will increase to 1.6% pt. In addition, the digitalization of government guidance will lead to the strengthening of the household safety net and the improvement of the quality of government services. The need for a stronger infrastructure will become even more necessary in the future for managing income information of Japanese citizens and bank accounts by linking them to the Social Security and Tax Number system.

◆(3) Effective Economic Measures: Japan's economic measures during the Corona Disaster were implemented more quickly than during the global financial crisis of 2008, and so far they have achieved results as notable in an international comparison. However, from the viewpoint of the extent of shortage of demand as seen in the GDP gap, and in terms of the fiscal situation as seen in an international comparison, additional fiscal spending of about 3% of GDP appears to be needed. Among the policy choices envisioned for additional economic measures, including the upcoming third supplementary budget, the various "Go To Campaigns" focus on industries with harsh business environments, with relative production spillover and large employment-inducing effects. An extension of the implementation period for economic measures should be considered assuming that thorough measures to prevent the spread of COVID-19 infections will continue.

◆BOJ’s monetary policy: During the period covered by this outlook, the CPI is expected to register year-to-year declines in FY2020 and FY2021. With economic recovery dragging its feet, a strong need for support of corporate financing is expected to continue. Hence we expect the BOJ to maintain its current monetary easing policy, with additional easing measures taken as necessary.

◆Our assumptions
Public works spending is expected to grow by +2.3% in FY20, and +1.0% in FY21.
We see an average exchange rate of Y105.5/$ in FY20, and Y104.0/$ in FY21.
US real GDP growth is seen at -3.6% in CY20 and +3.6% in CY21.

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			<title>Japan’s Economic Outlook No. 206 Update (Summary)</title>
			<link>https://www.dir.co.jp/english/research/report/jquarterly/20200909_021756.html</link>
			<pubDate>Wed, 09 Sep 2020 16:15:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆Real GDP Outlook: FY2020 -6.1%, and FY2021 +3.4%: The real GDP growth rate for the Apr-Jun period recorded the steepest decline of the entire postwar period at -28.1% q/q annualized. Meanwhile, the Jul-Sep period is expected to achieve growth of +13.2% q/q annualized. However, this merely manages to make up for around 40% of the decline in GDP during the Apr-Jun period. The pace of recovery is expected to be moderate. The main scenario of this outlook assumes that measures to prevent the spread of COVID-19 will be continued to be implemented to a degree, with the outlook for FY2020 real GDP growth rate at -6.1%. However, if an explosion of infections occurs in Japan, the US and Europe there would be a reissuance of a nationwide state of emergency in Japan and an unavoidable repeat of tough restrictions on economic activity in all of these countries as well as voluntary restraint and lockdown orders, which could lead to a double-dip recession. In this case, the FY2020 real GDP growth rate could be expected to deteriorate, falling as low as -9.4%. There is a danger that this could cause a sharp increase in the number of corporate bankruptcies, ultimately developing into a financial crisis. If a financial crisis along the lines of the Great Depression were to occur, the real GDP growth rate could deteriorate to as low as around -16%.

◆(1) Issues Associated with Increasing Social & Economic Activity in the Era of Living with Corona: Japan, as with most countries, faces the issue of balancing social and economic activity with the prevention of the spread of the COVID-19 infection. The economic rationale is that the state of emergency caused an excessive suppression of personal consumption. The current situation differs from the month of April when the state of emergency was declared in that there is now more room for the coexistence of social and economic activity and prevention of the spread of infection. Japan is no longer at the stage where an immediate reissue of an emergency declaration to all prefectures is required. Rather, it is necessary to take appropriate measures according to the infection situation to prevent the spread of local infections that are explicitly a problem. It is necessary for the government to sort out the form that its demand stimulating measures take, and to clearly indicate its framework for infection prevention measures so that an explosion of infections can be prevented.

◆(2) Effects of Spread of Infection on Potential Growth Rate: With the sharp decline in demand due to the Coronavirus Crisis, the pressure to carry out stock adjustment for capex is growing for services depending on face-to-face contact. However, capital expenditure in these industries accounts for only a small portion of overall industry. Moreover, for some industries the Corona Disaster is expected to actually be a positive factor in relation to capital expenditure. Finally, in the macro view, pressure to carry out stock adjustment for capex will be limited. In regard to labor input, while both the labor force participation rate and working time have recently fallen, it is likely that they will return to the original trend with the normalization of economic activities. However, there is a risk that stock adjustment for capex could become more serious and labor input could suffer a downturn if voluntary restraint of activities as a result of the spread of infection moves into the long-term. According to our standard scenario, although Japan’s potential growth rate is near zero, it is expected to maintain its position just into the positive side. However, if the spread of infection is not brought under control, a major negative will be inevitable.

◆Yet Another Potential Problem – Fears of a Real Estate Bubble Collapse: Abnormal conditions have also been seen in the real estate market due to the Coronavirus Crisis. The cap rate, which indicates the profitability of real estate, is at its lowest level in recent years, hence caution is required. However, unlike the financial crisis of 2008, government bond yield spreads have widened sufficiently, and there is little concern that land prices will fall sharply for the time being. In addition, there is increasing momentum to think seriously about the problem of the concentration of population in large cities in the context of the Corona Disaster. Due to changes in social structure, land prices in large cities may be subject to softening pressure over the medium to long-term.

◆BOJ’s monetary policy: During the period covered by this outlook, the CPI is expected to register year-to-year declines in FY2020 and FY2021. With economic recovery dragging its feet, a strong need for support of corporate financing is expected to continue. Hence we expect the BOJ to maintain its current monetary easing policy, with additional easing measures taken as necessary.

◆Our assumptions 
Public works spending is expected to grow by +1.6% in FY20, and +1.3% in FY21.
We see an average exchange rate of Y106.6/$ in FY20, and Y106.3/$ in FY21.
US real GDP growth is seen at -5.3% in CY20 and +3.2% in CY21.

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			<title>Japan’s Economic Outlook No. 206 (Summary)</title>
			<link>https://www.dir.co.jp/english/research/report/jquarterly/20200902_021737.html</link>
			<pubDate>Wed, 02 Sep 2020 14:30:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆Real GDP Outlook: FY2020 -6.0%, and FY2021 +3.4%: The real GDP growth rate for the Apr-Jun period recorded the steepest decline of the entire postwar period at -27.8% q/q annualized. Meanwhile, the Jul-Sep period is expected to achieve growth of +13.0% q/q annualized. However, this merely manages to make up for around 40% of the decline in GDP during the Apr-Jun period. The pace of recovery is expected to be moderate. The main scenario of this outlook assumes that measures to prevent the spread of COVID-19 will be continued to be implemented to a degree, with the outlook for FY2020 real GDP growth rate at -6.0%. However, if an explosion of infections occurs in Japan, the US and Europe there would be a reissuance of a nationwide state of emergency in Japan and an unavoidable repeat of tough restrictions on economic activity in all of these countries as well as voluntary restraint and lockdown orders, which could lead to a double-dip recession. In this case, the FY2020 real GDP growth rate could be expected to deteriorate, falling as low as -9.3%. There is a danger that this could cause a sharp increase in the number of corporate bankruptcies, ultimately developing into a financial crisis. If a financial crisis along the lines of the Great Depression were to occur, the real GDP growth rate could deteriorate to as low as around -16%.

◆(1) Issues Associated with Increasing Social & Economic Activity in the Era of Living with Corona: Japan, as with most countries, faces the issue of balancing social and economic activity with the prevention of the spread of the COVID-19 infection. The economic rationale is that the state of emergency caused an excessive suppression of personal consumption. The current situation differs from the month of April when the state of emergency was declared in that there is now more room for the coexistence of social and economic activity and prevention of the spread of infection. Japan is no longer at the stage where an immediate reissue of an emergency declaration to all prefectures is required. Rather, it is necessary to take appropriate measures according to the infection situation to prevent the spread of local infections that are explicitly a problem. It is necessary for the government to sort out the form that its demand stimulating measures take, and to clearly indicate its framework for infection prevention measures so that an explosion of infections can be prevented.

◆(2) Effects of Spread of Infection on Potential Growth Rate: With the sharp decline in demand due to the Coronavirus Crisis, the pressure to carry out stock adjustment for capex is growing for services depending on face-to-face contact. However, capital expenditure in these industries accounts for only a small portion of overall industry. Moreover, for some industries the Corona Disaster is expected to actually be a positive factor in relation to capital expenditure. Finally, in the macro view, pressure to carry out stock adjustment for capex will be limited. In regard to labor input, while both the labor force participation rate and working time have recently fallen, it is likely that they will return to the original trend with the normalization of economic activities. However, there is a risk that stock adjustment for capex could become more serious and labor input could suffer a downturn if voluntary restraint of activities as a result of the spread of infection moves into the long-term. According to our standard scenario, although Japan’s potential growth rate is near zero, it is expected to maintain its position just into the positive side. However, if the spread of infection is not brought under control, a major negative will be inevitable.

◆Yet Another Potential Problem – Fears of a Real Estate Bubble Collapse: Abnormal conditions have also been seen in the real estate market due to the Coronavirus Crisis. The cap rate, which indicates the profitability of real estate, is at its lowest level in recent years, hence caution is required. However, unlike the financial crisis of 2008, government bond yield spreads have widened sufficiently, and there is little concern that land prices will fall sharply for the time being. In addition, there is increasing momentum to think seriously about the problem of the concentration of population in large cities in the context of the Corona Disaster. Due to changes in social structure, land prices in large cities may be subject to softening pressure over the medium to long-term.

◆BOJ’s monetary policy: During the period covered by this outlook, the CPI is expected to register year-to-year declines in FY2020 and FY2021. With economic recovery dragging its feet, a strong need for support of corporate financing is expected to continue. Hence we expect the BOJ to maintain its current monetary easing policy, with additional easing measures taken as necessary.

◆Our assumptions
Public works spending is expected to grow by +1.6% in FY20, and +1.3% in FY21.
We see an average exchange rate of Y106.8/$ in FY20, and Y106.5/$ in FY21.
US real GDP growth is seen at -5.6% in CY20 and +3.5% in CY21.

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			<title>The Corona Crisis and the Global Economy: In this Report we Examine the Following Issues. (1) The Problem of Excessive Debt in the Advanced Nations, (2) Debt Risk in the Emerging Nations, and (3) The Effects of a Fragmented Supply Chain (No. 205 Update)[Summary]</title>
			<link>https://www.dir.co.jp/english/research/report/jquarterly/20200609_021590.html</link>
			<pubDate>Tue, 09 Jun 2020 15:00:00 +0900</pubDate>
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    ◆Revised economic outlook: FY2020 -5.1%, and FY2021 +2.9%: The GDP growth rate registered negative growth for the second consecutive quarter during Jan-Mar period of 2020. The Apr-Jun period is expected to suffer the greatest effects of the COVID-19 pandemic, and is expected to record a decline by around 20% q/q annualized. The main scenario of this outlook assumes that the COVID-19 epidemic will be on the way to being brought under control by somewhere around June, with the real GDP growth rate seen at -5.1% in FY2020. However, the possibility that the process of bringing the pandemic completely under control could slide into CY2021 and beyond is not small. If this happens, the FY2020 real GDP growth rate could suffer a major deterioration at -9.4%, and the risk of a financial crisis occurring as a result would increase. Possibilities are that the unemployment rate may rise more than 4%pt at worst, making additional economic measures to uphold business and maintain employment urgently needed.
◆(1) Risk of excessive debt due to Corona Disaster: The rapid decline of the global economy has brought increasing worries regarding the spread of debt risk. Debt has already accumulated to high levels worldwide in the private sector non-financial industries as well as in the public sector, and is likely to remain a concern for some time. As for private non-financial sector debt, pressure to reduce it could increase at any time. Private sector debt reduction is considered to be related, to a degree, to decline in economic growth rate because of decline in investment, but the point is to what extent. As for public sector debt, an increase in the short-term is unavoidable due to the necessity of governments carrying out economic measures. However, caution is necessary here since fiscal capacity differs depending on the country. On the other hand, there is also concern that economic growth could be hampered by excessive government debt continuing in the long-term. Maintaining fiscal discipline is likely to become more important in the future.
◆(2) What will happen in the emerging nations (precaution required): Risk of default in the emerging nations is increasing due to the COVID-19 pandemic. Countries with the highest risk out of a total of eighteen emerging nations taking into consideration four factors –risk of default as of 2019, risk of spread of COVID-19 infections, the low price of crude oil, and extent to which default on loans would have a ripple effect reaching other countries – are Russia, Brazil, South Africa, and Turkey. If debt risk comes to the surface, the creditors of these countries, for the most part advanced nations such as the US and the UK, will also experience negative effects. Spain suffered especially major economic impact due to the COVID-19 pandemic. Its fiscal condition was already bad even before the pandemic. The emergence of risk of default in emerging nations will make Spain’s fiscal condition even worse, and this could cause negative effects in the European countries.
◆(3) The ripple effects of stagnant production due to supply chain problems: The COVID-19 pandemic has caused not only a crisis in demand, but a crisis in supply as well. We analyzed the possible ripple effects using an international input-output table and found that the ripple effect per unit of production would be large for Taiwan and Korea, but small for the US, Europe and China. However, if we also take into consideration the scale of industry, the importance of China is huge for the global supply chain, both in supply and demand. The US, Europe, Japan, and China have all built a supply chain network with neighboring countries, and they have an interdependent relationship. This suggests that if the US and Europe suffer from stagnant production, the recovery of China’s economy will be hindered. Japan is easily influenced by issues of supply from foreign countries in its automobile industry and other industries, and it is possible that downward pressure on Japan’s production will continue due to supply constraints.
◆BOJ’s monetary policy: During the period covered by this outlook, the CPI is expected to register year-to-year declines in FY2020 and FY2021. A strong need for support of corporate financing is expected to continue due to the rapid deterioration of the economy. Hence we expect the BOJ to maintain its current monetary easing policy, with additional easing measures taken as necessary.
Our assumptions 
◆Public works spending is expected to grow by -0.4% in FY20, and +3.1% in FY21.
◆Average exchange rate of Y109.2/$ in FY20, and Y109.5/$ in FY21.
◆US real GDP growth of -4.8% in CY20 and +3.2% in CY21.

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			<title>Japan’s Economic Outlook No. 205 (Summary)</title>
			<link>https://www.dir.co.jp/english/research/report/jquarterly/20200602_021577.html</link>
			<pubDate>Tue, 02 Jun 2020 15:30:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆Revised economic outlook: FY2020 -5.5%, and FY2021 +3.0%: The GDP growth rate registered negative growth for the second consecutive quarter during Jan-Mar period of 2020. The Apr-Jun period is expected to suffer the greatest effects of the COVID-19 pandemic, and is expected to record a decline of more than 20% q/q annualized. The main scenario of this outlook assumes that the COVID-19 epidemic will be on the way to being brought under control by somewhere around June, with the real GDP growth rate seen at -5.5% in FY2020. However, the possibility that the process of bringing the pandemic completely under control could slide into CY2021 and beyond is not small. If this happens, the FY2020 real GDP growth rate could suffer a major deterioration at -10.1%, and the risk of a financial crisis occurring as a result would increase. Possibilities are that the unemployment rate may rise by around 5%pt at worst, making additional economic measures to uphold business and maintain employment urgently needed.

◆(1) Risk of excessive debt due to Corona Disaster: The rapid decline of the global economy has brought increasing worries regarding the spread of debt risk. Debt has already accumulated to high levels worldwide in the private sector non-financial industries as well as in the public sector, and is likely to remain a concern for some time. As for private non-financial sector debt, pressure to reduce it could increase at any time. Private sector debt reduction is considered to be related, to a degree, to decline in economic growth rate because of decline in investment, but the point is to what extent. As for public sector debt, an increase in the short-term is unavoidable due to the necessity of governments carrying out economic measures. However, caution is necessary here since fiscal capacity differs depending on the country. On the other hand, there is also concern that economic growth could be hampered by excessive government debt continuing in the long-term. Maintaining fiscal discipline is likely to become more important in the future.

◆(2) What will happen in the emerging nations (precaution required): Risk of default in the emerging nations is increasing due to the COVID-19 pandemic. Countries with the highest risk out of a total of eighteen emerging nations taking into consideration four factors –risk of default as of 2019, risk of spread of COVID-19 infections, the low price of crude oil, and extent to which default on loans would have a ripple effect reaching other countries – are South Africa, Saudi Arabia, Russia, Brazil, and Turkey. If debt risk comes to the surface, the creditors of these countries, for the most part advanced nations such as the US and the UK, will also experience negative effects. Spain suffered especially major economic impact due to the COVID-19 pandemic. Its fiscal condition was already bad even before the pandemic. The emergence of risk of default in emerging nations will make Spain’s fiscal condition even worse, and this could cause negative effects in the European countries.

◆(3) The ripple effects of stagnant production due to supply chain problems: The COVID-19 pandemic has caused not only a crisis in demand, but a crisis in supply as well. We analyzed the possible ripple effects using an international input-output table and found that the ripple effect per unit of production would be large for Taiwan and Korea, but small for the US, Europe and China. However, if we also take into consideration the scale of industry, the importance of China is huge for the global supply chain, both in supply and demand. The US, Europe, Japan, and China have all built a supply chain network with neighboring countries, and they have an interdependent relationship. This suggests that if the US and Europe suffer from stagnant production, the recovery of China’s economy will be hindered. Japan is easily influenced by issues of supply from foreign countries in its automobile industry and other industries, and it is possible that downward pressure on Japan’s production will continue due to supply constraints.

◆BOJ’s monetary policy: During the period covered by this outlook, the CPI is expected to register year-to-year declines in FY2020 and FY2021. A strong need for support of corporate financing is expected to continue due to the rapid deterioration of the economy. Hence we expect the BOJ to maintain its current monetary easing policy, with additional easing measures taken as necessary.

◆Our assumptions 
Public works spending is expected to grow by -0.5% in FY20, and +3.1% in FY21.
Average exchange rate of Y107.1/$ in FY20, and Y107.0/$ in FY21.
US real GDP growth of -4.8% in CY20 and +3.2% in CY21.

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			<title>In this report we examine the impact of the Novel Coronavirus epidemic on Japan’s economy (No. 204Update)[Summary]</title>
			<link>https://www.dir.co.jp/english/research/report/jquarterly/20200310_021375.html</link>
			<pubDate>Tue, 10 Mar 2020 16:55:00 +0900</pubDate>
			<description><![CDATA[
    
    ◆Revised economic outlook: The 2020 Jan-Mar period real GDP growth rate is expected to decline in comparison to the previous period due to voluntary restraint of economic activities and the deterioration of overseas demand arising from the Novel Coronavirus (COVID-19) epidemic. Our outlook for the real GDP growth rate has been revised downwards as follows: -0.5%pt in FY2019, and -0.3%pt in FY2020. For the time being, the greatest risk to the Japanese economy will be the COVID-19 epidemic. If the spread of the infection continues for the long-term, Japan’s economy could move into a major downturn. The main scenario of this outlook assumes that the COVID-19 epidemic will last for around three months, and then economic activity will be back to normal by sometime in the Apr-Jun period of 2020. In addition to the recovery of the Chinese economy and the comeback for the silicon cycle, Japan’s domestic economy is expected to maintain underlying strength with the help of the expansive fiscal policy and tight labor market. Though moderate, economic recovery is expected to continue. Though moderate, economic recovery is expected to continue, but risk of the economy’s entering a recession is increasing rapidly.
◆(1) The future of the economy according to the cyclical view:The economic recovery pattern which has been observed in the past is that first China recovers, then the US, and after that Japan. Based on this pattern it is Japan’s turn to enter a recovery phase, which is expected to occur sometime in CY2020. The recovery of exports will be an important point for some time to come. Looking at the situation by industry, production growth is expected in electronic parts and devices in association with the recovery in demand for semiconductors. On the other hand, transport equipment, which is highly sensitive to the influence of household income, is expected to continue marking time. The pattern of divergence between these two industries is expected to continue. However, according to our estimate, which takes into consideration the structure of interdependence between industries, overall industrial production should continue in a moderate growth trend with increasing demand for capital goods due to rising factory operating rates. At the same time we recommend paying close attention to the risk that our major assumption, the silicon cycle, may be negatively affected by the COVID-19 epidemic.
◆(2) The future of personal consumption after the consumption tax hike:The last time the consumption tax was raised, consumption fell into a downturn due to the decline in purchase power, especially amongst low-income households. This time around, however, purchase power actually increased due to social security enhancement measures, such as a reduced tax rate, and free early childhood education. This brought stability to the consumption behaviors of low income households. In contrast, this time around different characteristics have been seen, such as the fact that buying restraints in high-income households have pushed down consumption instead. The future of personal consumption is expected to continue experiencing harsh conditions for the time being due to the voluntary curtailing of activities in association with the COVID-19 epidemic. Consumption is expected to make a comeback once the COVID-19 epidemic comes to an end and the economy returns to normal. However, with stagnant growth in income and the increase in the tendency to economize, as well as the gradual phasing out of government programs to counter the effects of the consumption tax hike, growth is expected to continue to decline somewhat.
◆(3) Risks in 2020:In the run-up to the US presidential election, President Trump has made his support of the American manufacturing industry an issue. There is a limit to the kinds of policies that could be put into place the short time left before the elections, so it is quite possible that he may strengthen his tendency to lean toward a weak dollar policy. Here too we must remain vigilant. On the other hand, if election results bring in a new administration, we will see yet other risks to the economy. This would entail the rolling back of the Trump tax cuts and the strengthening of the regulatory framework. Meanwhile, rising tensions in the Middle East bring the risk of rising oil prices. The concern here is that Japan’s real GDP could be pushed down by a maximum of around -0.8% coupled with yen appreciation which would occur due to risk-off behaviors. As for concerns that construction demand will disappear after the Tokyo Olympic and Paralympic Games, this will likely not break the back of the economy since there is still a huge backlog of construction orders which have not yet been filled due to insufficient supply.
◆BOJ’s monetary policy:During the period covered by this outlook, the CPI is expected to -0.1% in FY2020 and +0.4% y/y in FY2021. Hence we expect the BOJ to maintain its current monetary easing policy for the time being. With central banks in the US and Europe strengthening their monetary easing policies, Japan too is expected to begin moving in the direction of a limited addition to its range of monetary easing.
Our assumptions 
◆Public works spending is expected to grow by +5.4% in FY19, +1.8 in FY20, and +0.0% in FY21.
◆Average exchange rate of Y108.5$ in FY19, Y105.0$ in FY20, and Y105.0/$ in FY21.
◆US real GDP growth of +1.9% in CY20 and +2.0% in CY21.

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