Japan’s Economy: Monthly Outlook (Sept. 2018)

◆President Trump decided to levy additional tariffs on the equivalent of around 200 billion dollars in Chinese imports. Meanwhile, China has decided to implement retaliatory tariffs on the equivalent of around 60 billion dollars in American products. We examine additional tariff rates per item and the total amounts in tariffs associated with tariff policies which have already been publicly announced (US 50 bil dlrs + 200 bil dlrs, and China 50 bil dlrs + 60 bil dlrs).

◆According to our analysis, US tariffs on Chinese products effect a total of 235.3 billion dollars in imported items. Tariffs totaled 30.5 billion dollars in 2018, and are expected to reach a total of 58.8 billion dollars in 2019. The average additional tariff rate imposed per product was 13.0% in 2018, and is expected to reach 25.0% by 2019. As for types of products affected, the greatest weight goes to various types of machinery and electronic devices. On the other hand, Chinese tariffs imposed on US products total 115.8 billion dollars in imported items. The total amount in tariffs is 17.5 billion dollars with the average tariff rate per item at 15.1%. As for types of products affected, the greatest weight goes to automobiles, soy beans, machinery of various kinds, electrical generators, and control devices as well as other electrical devices.

◆The FY2019 budget request has been announced. The total is 102.8 trillion yen, or an increase of +5.1 trillion yen in comparison to the previous fiscal year, or +1.8 trillion yen in comparison to the budget request. The total amount in general expenditures excluding debt servicing costs (but including tax allocations to local governments) is 78.2 trillion yen, or +3.8 trillion yen in comparison to the previous fiscal year’s budget, or +1.0 trillion yen in comparison to the budget request. We use the DIR macro model to estimate the effects on the Japanese economy with growth in the amount of the budget request as one of our basic assumptions. According to the results of our estimate, real GDP is expected to grow by 0.14% in association with the increase in government spending next fiscal year, while the deficit in the primary balance as a proportion of GDP is expected to grow by 0.15%pt.

◆In light of the 2nd preliminary Apr-Jun 2018 GDP release we have revised our economic growth outlook. Our estimate of real GDP growth after the revision is +1.2% in comparison with the previous year for FY18, and +0.8% in comparison with the previous year for FY19. Our assessment of Japan’s economy remains unchanged. The economy is now in a temporary lull, with the positive factors which came together in FY17 now in the process of falling away. We expect Japan’s economy to continue slowing down for some time, and then move toward an extremely moderate growth pattern.