USD4601.5 bn (World
ranking 3, World Bank 2014)
(World ranking 10, World Bank 2014)
government with a Constitutional Monarchy
legislative (House of Councillors)
- Current account
- Small public external
- Good geographical
- Innovative industries and
high quality products
- High savings rate
- Vulnerable to natural
- Ageing population
- Huge public debt and large
- Highly dependent on energy
Gradual pick-up in activity,
GDP growth is set to improve gradually in 2016 (+0.7%)
and 2017 (+1%) supported by accommodating policies.
Financing conditions are supportive of ultra-loose
monetary policy. The fiscal stance is becoming more
relaxed with new rounds of stimulus expected this year
(1pp of GDP at least) and another postponement of the
sales tax (from April 2017 to October 2019). Domestic
demand will be the main growth driver in the short run.
In particular, private consumption will pick up speed,
benefiting from improving purchasing power, more
favorable fiscal environment and rising confidence as
the sales tax has been delayed. Investment is set to
increase but as slow pace due to weak profits growth in
H1 2016, strong JPY undermining price competitiveness
and weak new export orders. After seven consecutive
years of decline, insolvencies will stabilize in 2016
and increase slightly in 2017 (+3%).
External position is solid but is
hindered by low external demand
Japan has a net creditor position with a net
international investment position of JPY339tn in 2015.
Moreover, the country exhibits a solid current account
surplus underpinned by large investment revenues and
reduced trade deficit thanks to low oil prices. Low
external demand and higher yen hinder the short term
outlook with lower exports revenues expected this year.
The current account surplus will decrease close to 3%
GDP in 2016.
Policies: high public debt and low
progress on reforms are the main concerns
Public debt is set to increase to 251% GDP in 2017
(248% GDP in 2015). The government decided to slow the
pace of “fiscal consolidation” again, postponing the
sales tax rise and adding further stimulus to the
economy. Although the size is critical (the
highest among advanced economies), the debt ownership
structure (non-resident holding of Government debt is
about 9 percent) and the low-interest rate insulate the
Japanese economy from a financial shock in the
short-run. However, a clear plan to reduce the debt
will be needed to ensure the medium term outlook. On
the monetary front, the ultra-loose stance will be
maintained and probably extended as stronger JPY and
further deflationary pressures undermine growth.
Furthermore, in order to put growth on a sustainable
pace, less reliant on stimulus, the authorities will
also need to move quicker on reforms especially on
labor market flexibility and TPP ratification.
Last review: 06/22/2016