Japan: Risk scenarios for 2017 – BNPP

For 2017, analysts at BNP Paribas expect the Japanese economy to continue growing at a moderate pace and inflation to pick up somewhat, causing the central bank to edge towards policy tightening.

Key Quotes

“One risk is that the yen depreciates even faster than we expect and the Bank of Japan hikes the target for the long-term rate to rein in ‘excessive’ yen weakness.”

“But the government may instead try to assuage public discontent with weak yen by providing fiscal support. In this case, yen would weaken further and inflation pressure should mount.”

“With the economy in full employment, it is possible that wages accelerates significantly and more than offset the side effect of yen depreciation. But the odds of this scenario are low.”

“The main downside risks are external factors. The main policy tool to counter adverse shock (such as global slowdown and yen appreciation) would be fiscal policy, not monetary policy.”