Japan likely to expand around 2 pct q/q annualized through rest of fiscal 2017, says Danske Bank

The Japanese economy is expected to register GDP-growth of around 2 percent q/q annualized through the rest of fiscal 2017 and a significant slowdown in fiscal 2018 when stimulus starts to wear off. Public spending is also set to remain supportive for the economy through the fiscal year 2017, which runs from Q2 2017-Q1 2018, Danske Bank reported.

The Japanese economy picked up speed in Q2 and grew at an annualized growth of 2.5 percent q/q. Thus, the economic upswing continued and the last six quarters now constitute the longest period of positive growth in Japan since before the crisis.

According to Bank of Japan’s TANKAN survey, businesses are turning increasingly upbeat, more companies have reported favorable conditions since Q2 16 and more companies are looking for favorable conditions in Q3. On the other hand, PMIs have decreased in July and August, particularly driven by the service sector, which could signal some slowdown in domestic demand.

Manufacturing PMIs have also shown some signs of a slowdown, which is also what we see in industrial production over the summer. Composite PMI now stands about one index point lower than Q2, which indicates a decrease in Q3 for the first time in 2017.

"We expect monetary policy to remain extremely accommodative throughout the forecast period, which will also be supportive for demand, both domestically and abroad. We expect private consumption to stay on a positive trend but as long as wage increases remain depressed, it will probably be at a moderate pace," the report said.

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