The odd one out
|The economic recovery has been weak, largely hampered by Covid-19, but that leaves some potential for growth.
Short-term, the economy will enjoy tailwinds from loosening supply chain issues, the weak yen and pent-up private spending. Another fiscal boost in 2023 will support growth, but a global recession will weigh heavy on exporters.
Inflation is moving higher, but we expect a global recession will keep unions’ focus on job security in the spring wage negotiations, obstructing a price-wage spiral.
Our base case is that Bank of Japan’s yield curve control remains in place, but the risk of an involuntary exit with potential large consequences to financial markets has increased significantly.
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