Japan Market Outlook

The Japanese Market presents itself as very robust despite devastation through the largest earthquake in history
The Japanese economy has recovered surprisingly quickly from the devastating damages of the Tohoku earthquake. GDP surged by 1.5% in the three months between July and September which is a substantial turnaround after three quarters with negative growth rates in a row. The Japanese economy will nevertheless show a contraction of 0.6% for calendar year 2011 according to our estimates. For 2012 we forecast a strong rebound to 3% growth. We base our optimistic outlook mainly on the spending by the Japanese government on reconstruction and on the economy. The Japanese Prime minister Noda ordered just recently the compilation of a fourth extra budget of at least 2 trillion yen ($26 billion) in a step which is unprecedented since postwar reconstruction. Japan has already allocated 18 trillion yen ($234 billion) in three packages since March this year. The fourth package is intended to help shore up the economic recovery which is under threat from the recent surge in the yen exchange rate, the European sovereign debt crisis and the Thai floods that have disrupted production. Moreover, we expect further asset purchases by the Bank of Japan as well as interventions on the foreign exchange market. The combination of a powerful fiscal stimulus with an ultra easy monetary policy stance will in our view create an environment of strong growth. There is even a good chance that deflation will be defeated and inflation will return at the end of 2012.

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