Japan’s Economy: Monthly Outlook (January 2020)

◆Outlooks expecting a rise in the financial markets since the end of last year can most easily be described as the expectation for a Goldilocks economy. Outlooks were based on the following developments: (1) the global economy hit bottom, (2) monetary easing policies were continued, and (3) there were fewer uncertainties. An environment became manifest in which the growth trend in prices of a broad range of financial assets could be supported. It was not impossible to envision a scenario in which the global economy would be getting back on the road to full-fledged economic expansion accompanying the asset effect associated with growth in prices of financial assets. However, there are a number of cautionary notes which should accompany this scenario.

◆First of all, it will likely take time for the global economy to hit bottom. Chiefly, it should be noted that declines in capital goods and durables centering on the advanced nations are becoming more serious. Secondly, maintaining low inflation is contingent on the continuation of monetary easing policies, and in this context, it is necessary to keep an eye on movements in the price of natural resources. Meanwhile, it has also become unclear whether or not the FRB will be able to continue its current asset purchasing program. The third factor is that if the Democratic Party wins a majority in the US presidential and congressional election, it will become highly likely that the corporate tax will be raised. Furthermore, we cannot ignore the risk that current President Donald Trump could move toward adopting a weak dollar policy in hopes that this would give him an advantage in the election campaign. While not all of these factors are necessarily high risk realistically speaking at this time, they are issues which we must remain aware of.