JPY: Has Japan's economy taken a dangerous turn? – Nomura


Research Team at Nomura, notes that the Japanese real GDP growth turned down to -1.4% q-q annualized in 2015 Q4 and they see the contraction as due chiefly to sample bias with the Family Income and Expenditure Survey, which provides core data for GDP estimates.

Key Quotes

“By our estimate, underlying real GDP is likely to have held essentially flat q-q. We think it reasonable to say that the Japanese economy leveled out in Q4 after expanding 1.3% q-q annualized in Q3.

Recent yen appreciation and share price declines likely to lead to low growth in 2016 H1: We expect recent yen appreciation, share price declines, and falling crude oil prices to affect the Japanese economy from 2016 Q1. Yen strengthening has a particularly large impact; we estimate appreciation of ¥10 against the dollar depresses annual recurring profits at manufacturers (excluding their overseas bases) by about ¥6trn.

We have cut our estimate for real GDP growth in 2016 Q1 and Q2 to less than 1% q-q annualized to reflect the likely impact of recent market turbulence on capex and consumer spending. Although we expect the negative interest rate policy adopted by the BOJ on 29 January to have some effect in terms of weakening the yen and stimulating demand for funds, we think it unlikely to provide a major boost to the economy given such factors as the negative impact on earnings at financial institutions.

Concerns over global economic growth behind global financial market turmoil: We see global market turmoil since the start of the year as reflecting growing worries over fundamentals for the global economy. In our view, however, fundamentals do not actually appear to have deteriorated significantly. We look for downside economic risks to recede and the markets gradually to settle down as they factor in the positive effects of US economic signals and moves to step up policy responses in various countries. That said, if market turmoil persists, future growth rates could come down significantly.

Necessary condition for deferring consumption tax hike is continued high risks emanating from overseas: The view has been gaining ground among some in the market that the consumption tax hike scheduled for April 2017 could be deferred again in response to recent heightening risks of economic slowing. From a political perspective, we think such heightened risk would have to stem from increased overseas risk in order for the consumption tax hike to be deferred.”

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