Japanese economy likely approaching sustainable levels of growth, GDP growth to average 1 pct in 2018-2019

Momentum of Japanese economic growth is showing signs of weakening after a period of quick gains. Real economic growth contracted 0.2 percent sequentially in the first quarter, marking the first quarterly fall since the fourth quarter of 2015. On a year-on-year basis, output rose 1.1 percent after an average rise of 1.7 percent in 2017.

While, the economy is unlikely to dip into recession, the pace is expected to continue to converge toward more sustainable rates, noted Scotiabank in a research. The Bank of Japan expects that the current potential growth rate of the economy is 0.9 percent year-on-year and that its output gap has been positive since the end of 2016.

The strong global activity is expected to underpin the export-oriented Japanese economy in the quarters ahead in spite of persistent trade-related uncertainties that warrant close monitoring. Japanese stronger employment conditions are likely to support household spending prospects, though the tighter labor market has yet to push wages higher in a notable fashion. Fixed investment growth is likely to be supported by corporations’ healthy balance sheets and growth oriented fiscal and monetary policies.

“We expect Japanese real GDP growth to average 1.0 percent y/y in 2018‒2019, virtually in line with the economy’s potential”, added Scotiabank.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Japanese Yen was highly bearish at -170.717, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 166.061. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex