Download Japan Business Forecast Report Q2 2011 Brochure

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Japan Business Forecast Report Q2 2011
Description:
Fiscal Crisis Risks Growing
Japan’s economy is likely to experience a strong H111 as the export engine revs in response to a pick-up in
external demand. However, we do not believe an improvement in near-term growth will be nearly enough to
improve the government’s debt dynamics, which are becoming increasingly unsustainable. We have written
on numerous occasions that we expect some form of credit event/ debt restructuring/excessive
monetisation (or a combination of all three) to take place over the coming years as the debt load is too large
to pay off by normal means and will soon become too large to service. As we delve deeper into the fiscal
accounts, our conviction only strengthens.
Japanese Prime Minister Naoto Kan’s position is looking increasingly untenable and we believe he could be
forced to leave office within the next few months if his popularity falls further. His approval rating has seen
ups and downs since he took office in June 2010 and, as recently as last September, it was above 60%.
However, a poll conducted in the first week of February showed his support went down to 27%. A separate
poll even put Kan’s backing at 21.3%. Given that most Japanese premiers come under pressure – from either
the public or their party – to resign when their approval rating drops below 30%, Kan is clearly in vulnerable
territory. However, even if Kan is replaced, his successor is unlikely to fare better, given the extent of Japan’s
economic woes – namely weak growth, ongoing deflation and a colossal debt burden.
Despite the widely expected quarterly contraction in Q410, Japan’s near-term growth prospects are turning
up, led by a brighter external outlook and a revival in private and public sector investment. For these
reasons, we are comfortable maintaining our real GDP growth forecast of 1.6% for 2011. Nevertheless,
fundamental concerns regarding the country’s poor demographics and dire fiscal accounts will continue to
cast a heavy shadow over the longer-term outlook. Indeed, despite the large amount of public sector assets
that the Japanese government holds, we estimate that its net debt situation is the worst in the OECD at
roughly 135% of GDP when public corporations are included. We continue to see the government eventually
embarking on debt monetisation or restructuring as the debt burden becomes unsustainable.
Japan’s business environment is supported by a strong rule of law, stringent property right protection and
excellent infrastructure. However, corruption within public sector procurement, a relatively inflexible labour
market and high corporate tax rates are impediments to investment. The government’s reluctance to
accommodate foreign investment in a wide range of local industries acts as an impediment to the
development of the business environment.
Contents:
Executive Summary
Fiscal Crisis Risks Growing
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Ruling Party’s Woes To Exacerbate Fiscal Outlook
Japanese Prime Minister Naoto Kan’s position is looking increasingly shaky and we believe he could leave
office in the coming months
Long-Term Political Outlook
Can Any Government Reverse The National Decline?
Japan’s political scene will be more unpredictable in the 2010s, now that the country has moved beyond sole
rule by the Liberal Democratic Party
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growth Upturn: Enjoy It While It Lasts
Despite the widely expected quarterly contraction in Q410, Japan’s near-term growth prospects are turning
up, led by a brighter external outlook and a revival in private and public sector investment
Table: ECONOMIC ACTIVITY
Balance Of Payments
Trade Surplus To Remain Intact In 2011
Japan’s trade surplus has bounced back in recent months due to a combination of improving export demand
and subdued consumption, table: CURRENT ACCOUNT
Exchange Rate Policy
Table: JAPAN CURRENC Y FORECAST
Table: EXCHAN GE RATE
Fiscal Policy
Bond Market Risks Growing
Despite the large amount of public sector assets that the Japanese government holds, we estimate that its
net
debt situation is the worst in the OECD at roughly 135% of GDP when public corporations are included
Table: FISCA L PO LIC Y
Chapter 3: 10-Year Forecast
The Japanese Economy To 2020
Three Barriers To Robust Growth
There are three factors that stand in the way of Japan achieving anything other than meagre real GDP
growth over the coming decade: demographics, the fiscal burden and the low return on investment. table:
JAPAN Long-Term Macroeconomic Forecasts
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
Table: BMI Business And Operation Risk Ratings
Table: BMI Legal Framework Rating
Infrastructure
Market Orientation
Table: Labour Force Quality
Table: Trade And Investment Ratings
Chapter 5: Key Sectors
Operational Risk
TABLE: TOP EXPORT DESTINATIONS
Metals
Table: Japan’s Metals Industry, 2007-2015 (’000 tonnes unless stated)
Chapter 6: BMI Global Assumptions
Global Outlook
Growth Solidifies, But Inflation Poses A Threat tabl e: Global Assumptions
TABLE: GLOBAL & RE GIONA L REA L GDP GRO WTH % CHG Y-O-Y
TABLE: CONSENSUS FORECASTS
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