Japan: Sluggish recovery of economy – Commerzbank

Dr Jörg Krämer, Chief Economist at Commerzbank, suggests that the recent economic data from Japan gives reason to assume that the economy only just avoided another contraction in the first quarter.

Key Quotes

“Given that the population is shrinking, especially the working age population, low trend growth is to be expected anyway.

The government is considering giving the economy a boost through higher public spending.

In March, the inflation rate stood at -0.1%. The target of the central bank (BoJ) to drive inflation up to 2% is still a long way off. Only the announced second step of the VAT hike in April 2017 should push up inflation temporarily. But should economic growth remain disappointing, the government could cancel or postpone the VAT hike.

In January, the BoJ introduced a negative interest rate of -0.1% for a part of bank deposits at the BoJ. Even so, the yen has appreciated markedly of late, thwarting the BoJ’s intention to drive growth and inflation through a weaker currency. We remain sceptical that the BoJ will achieve its targets and expect the central bank to lower interest rates further.”