Economic Outlook ’14


Yesterday I joined a press conference at the Foreign Correspondents Club of Japan at which three leading Japanese economists, Hiromichi Shirakawa of Credit Suisse Securities Japan, Masayuki Kichikawa of Bank of America Merrill Lynch, and  Masamichi Adachi of JP Morgan, presented their economic outlooks for 2014.

The “bottom line” is that all 3 speakers presented a positive growth forecast for Japan this year.

Here are their GDP projections for fiscal year 2014:

Credit Suisse 1.8%

BOA 1.4%

JP Morgan 0.6%

The economists believe that the effects of the increase in the consumption tax from 5% to 8% in April will not be lasting, offset by an expected government stimulation package in the 2nd half of the year and corporate tax cuts.

They did not dwell much on the 3rd arrow of Abenomics, not  even mentioning TTP, although it came up during the Q&A period. One of the economists emphasized the potential for growth brought about by reform in the agricultural sector, which represents a puny 1% of Japan’s  total economy. Stronger branding of Japan food, as achieved by the French and Italians, could double the size of agricultural industry as a component of Japan’s economy. Many people are unaware that Tokyo has topped the list in Michelin’s Guide of top restaurants for 3 years consecutively. Kyoto itself has more starred restaurants than Paris.

The economists’ foreign exchange forecast for the yen anticipated continued weakening, in a range of 110-120 yen/dollar.

In response to  a Q about  the risk of tense Japan/China relations (e.g. island disputes) an economist commented that Japan exports to China 20% of total exports, and auto exports account for 15% of that 20%. He indicated what seemed a relatively small impact on GDP if there is a Chinese boycott of Japanese goods.

I believe that  he understated the potential risk. If China orchestrates large-scale protests (everything in China is large-scale) the impact on Japan’s economy would be very disturbing. Discretion is here the better part of valor. Prime Minister Abe should keep his mouth zipped from provocative statements and stay away from revisits to the controversial Yasukuni war shrine. Better stick to a focus on Abenomics, which in its first year has produced stellar results. It seems that Japan is finally escaping from the economic stranglehold of deflation plaguing the economy for so long.

Akemashite omedeto gozaimasu.

Warren J. Devalier
©2014 Warren J. Devalier