Moody's Japan K.K. expects robust growth in external demand to continue this year and next for Japan, and when combined with ongoing policy stimulus and construction for the 2020 Olympics, forecasts real GDP growth of 1.5% in 2017 and 1.1% in 2018, above Japan's long-term potential.
Japan's (A1 stable) economy had already recorded six consecutive quarters of positive quarter-on-quarter GDP growth until Q2 2017, the longest streak of positive growth since the period between Q1 2005 and Q2 2006.
In turn, relatively robust nominal GDP growth will contribute to stabilizing the government's debt burden, despite limited scope for outright fiscal consolidation. Debt affordability will continue to improve in the next few years as debt refinancing occurs at lower rates.
While these positive developments provide tentative evidence of some traction of policy stimulus, we expect monetary policy to remain accommodative for some time. Headline inflation, which has averaged 0.4% through the first eight months of 2017, remains well below the Bank of Japan's 2% inflation target.
Furthermore, the tightening labor market has not spurred higher wage inflation, which remains very low especially for regular workers.
“In the absence of relatively firm indications that inflation expectations are rising, the central bank is likely to press on with its "inflation overshooting commitment" for the foreseeable future, consistent with a very accommodative stance remaining in place,” says Moody’s.
“The compendium also aggregates a selection of recently published sovereign, sub-sovereign, project & infrastructure finance, corporate finance, financial institutions and structured finance key research pieces.”