© Junko Nishioka
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The Japanese government downgraded its economic assessment for the world's third-biggest economy. Junko Nishioka, Chief Economist at RBS Securities Ltd, provided her insight into the reasons behind this decision, her expectations concerning possible BOJ actions, and outlook for the Japanese economy.
The Japanese government cut its economic assessment for the first time in 10 months. What were the reasons behind this decision?
The main background of the government's decision to downgrade the Japanese economy conditions is slowdown of the overseas demand. The U.S. demand is slowing down gradually, and also we are observing some downside risks in the European countries. These are the main factors, which contributed to the downgrade of the assessment of the Japanese economy.
Actually, I would agree that currently the Japanese economy is at soft patch phases, but it also means that the Japanese economy is not necessarily facing recessionary risk at this moment. The economy is now pushed up by the public investment which has already been funded by the supplement budget for the last fiscal year. Thus, I think that the chance of a recession of the Japanese economy is still low.
What do you expect from the next meeting of the Bank of Japan in September?
I think in September the BOJ is unlikely to change its monetary policy even the Fed or ECB will take another action in the near term. What can persuade the BOJ to reconsider the further easing of the monetary policy are the developments of the FX market. For example, if USD/JPY declines more to 75-76, it could trigger the BOJ to take actions by adding other asset purchase programme from the current 75 trillion Yen to as much as 80-85 trillion Yen.
Do you expect a decline of the GDP this quarter?
I do not believe the GDP number to record a negative growth this quarter, I mean July-September period. However, our initial expectations were that the Japanese third quarter GDP would mark consecutive positive growth at around 2%, but that chance is decreasing I think. We are already seeing a slowdown in export activity, and now we are revising down our GDP forecast for the Q3 to less than 2% or even 1%.