We think Japan is heading for a slowdown, but more domestically driven growth is positive news. We expect GDP growth of 0.9% in 2018 and 2019. In 2020, we expect the consumption tax hike to weigh on growth but the impact should be much smaller than after previous tax hikes. We expect growth to end up at 0.5% in 2020.
We are seeing the first indications private demand is picking up and the economy is becoming more self-driven and less dependent on foreign demand.
Japan's biggest trading partners are the US and China. The trade war thus poses a risk to the current economic recovery. In our view, the planned October 2019 consumer tax hike is likely to derail growth but the negative impact should be fairly short-lived as mitigating measures are in place.
With reflation nowhere in sight, we expect the Bank of Japan to stay on hold through 2019 and 2020.
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