Japan

RGE's Q1 2010 Japan Outlook

Japan’s Lost Decades are not over yet. Though annual real Japanese GDP growth will turn mildly positive at 0.8%-1.2% in 2010 thanks to strong base effects and Japan's sensitivity to exports, conditions on the ground will remain a far cry from Japan's pre-1990 glory days. Moreover, ongoing deflation means nominal GDP will continue to contract.

Balance sheet adjustments by consumers and banks will continue to hamper export demand from the U.S. and Europe (via emerging Asia), while consumers in Japan will struggle with falling incomes, high unemployment and the ongoing need to save as the social security system buckles under the swelling mass of retiring baby boomers. Other than flashy year-over-year export growth figures, Japan's recovery will be a technical bounce at most.

As RGE expected, Japan's real GDP growth hit a pothole in the second half of 2009 once inventory restocking and fiscal stimulus effects faded. A strong yen shielded Japan from rebounding commodity prices, buoying consumption more than we expected in our last outlook.

Read the Q1 2010 Japan Outlook.