A prolonged period of tightening US monetary policy is Japan’s biggest risk next year, but the world’s third largest economy is unlikely to slide into recession for now. This is what most economists interviewed by Reuters think.
The poll comes as Japan struggles to stabilize its currency, which has fallen against the US dollar to its lowest level in 32 years (11-20 October). This decline is mainly explained by the difference between US and Japanese primary interest rates.
Of the 29 leading economists surveyed, 17 (59%) believe the greatest risk to the Japanese economy is a longer-than-expected period of US Fed monetary tightening.
“One thing aggressive rate hikes by the Fedit could prolong and deepen the US recession, which will spill over to the global economy and also hurt Japanese exports, “said Harumi Taguchi, chief economist at S&P Global Market Intelligence.
“It could also be quite dangerous to the costs and salaries of Japanese companies, as it becomes more difficult for companies to pass on the increased costs due to the sharp decline in the yen to consumers,” he adds.
Many international organizations, including the International Monetary Fund (IMF), are lowering their forecasts for global gross domestic product (GDP) for 2023, citing rising prices and more expensive credit.
“The USD-JPY currency pair could even go as high as 170 yen per dollar (currently around 146 yen per dollar) as the Bank of Japan adheres to extremely accommodative monetary policy. This will hurt real household incomes.” Chiyuki Takamatsu, chief economist at Fukoku Mutual Life Insurance.
In his words, “The Japanese economy looks resilient compared to others, but it is only because the recovery from the pandemic is delayed, eg. now it is catching up. “
According to the Reuters poll, respondents expect consumer inflation in the country remain above the Bank of Japan’s 2% target until nearly mid-2023, and then drop to 1% or less in the last quarter of next year and beyond.
Japan’s core consumer price index (Core CPI) rose 3% in September, marking its strongest increase since 2014, mainly due to the further strengthened rise in commodity and energy prices. from the decline of the yen.
The survey also notes that three-quarters of economists surveyed expect “softened” monetary and credit policy in Japan to continue at least until the second half of 2023.
Over 80% of the economists interviewed expect it the next step in the Bank of Japan’s policy will be a reduction in the financial relief, and according to half – that the preliminary indication will be changed.
Less than half of respondents believe this change will lead to an increase in the target 10-year bond yield, which is currently around 0%.
According to the average estimate of 34 leading economists, Japan’s GDP growth will be 2% year-on-year in the fourth quarter of this year, while in the September survey, growth was 1.9%.
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