1. Home
  2. Reports
  3. Japan's Economy: Monthly Outlook
  4. Growing Downside Risk(Jan 2016)

Growing Downside Risk(Jan 2016)

Gradual recovery seen, but caution required regarding five risks

Mitsumaru Kumagai

Satoshi Osanai

Keisuke Okamoto

Shunsuke Kobayashi

Shotaro Kugo

Hiroyuki Nagai

Summary

Growing downside risk: World financial markets have continued to experience turmoil in the early weeks of 2016. According to our main scenario, we expect Japan’s economy to move toward a gradual recovery during the year 2016 due to the following factors: (1) Continuation of the virtuous circle brought on by Abenomics, and (2) A gradual comeback in exports centering on the US. However, a note of caution is also required, as the effects of turmoil in world financial markets brings risk of an economic downturn.


Risk factors facing Japan’s economy: (1) The downward swing of China’s economy, (2) Tumult in the economies of emerging nations in response to the US exit strategy, (3) A worldwide decline in stock values due to geopolitical risk, (4) The worsening of the Eurozone economy, and (5) The Triple Weaknesses – a weak bond market, weak yen, and weak stock market due to loss of fiscal discipline. Our outlook for China’s economy is optimistic in the short-term and pessimistic in the mid to long-term. Looking at China’s economic situation in a somewhat reductive way, the fact is that China’s government holds treasury funds totaling between 600 to 800 tril yen with which it is standing up to over 1 quadrillion yen in excessive lending and over 400 tril yen in excess capital stock. China is expected to be able to avoid the bottom falling out of its economy for a little while, but in the mid to long-term, there is risk of a massive capital stock adjustment.

Daiwa Institute of Research Ltd. reserves all copyrights of this content.
Copyright permission of Daiwa Institute of Research Ltd. is required in case of any reprint, translation, adaptation or abridgment under the copyright law. It is illegal to reprint, translate, adapt, or abridge this material without the permission of Daiwa Institute of Research Ltd., and to quote this material represents a failure to abide by this act. Legal action may be taken for any copyright infringements. The organization name and title of the author described above are as of today.