Japan Country Risk Report Q4 2015 - New Market Research Report

Rising geopolitical tensions over territorial disputes in the South and East China seas are raising the risk of a military clash between China on one side and the US, Japan, Vietnam, and the Philippines on the other. This could quickly escalate into a major global crisis.

Recently revised Q115 real GDP figures and a number of leading indicators point to stronger growth in 2015 as a whole, and we have revised up our forecast to 1.2% from 0.8% previously. However, the distortions created by ongoing monetary and fiscal policies suggest that the recovery will not be sustainable, and we expect real GDP growth to fall back to 0.7% in 2016.

Underlying inflationary pressures are building in Japan despite declining headline CPI, and we believe that the BoJ will refrain from expanding its QE programme in the near term. However, a still-high fiscal deficit and the upcoming huge rollover of government bonds will require the BoJ to buy JGBs as the lender of last resort, further expanding its balance sheet.

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Japan's fiscal position shows no sign of the kind of material improvement that would reduce our concerns of a future fiscal crisis. We remain bearish on 10-year Japanese government bonds.

Japan's largest banks continue to expand overseas amid narrow net interest margins domestically. We expect this trend to continue, but note the risks posed to the sector from possible yen appreciation. From a medium-term perspective we continue to see banking equities outperforming the Nikkei, owing to relatively cheap valuations.

The surge in Japan's current account inflows and concomitant financial account outflows is buttressing the country's already huge stock of overseas assets. We expect these assets to continue growing as Japanese businesses increasingly look overseas for investment opportunities, to the detriment of the domestic economy.

The Japan Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Japan. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Japan's economic, political and financial prospects through end-2019, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

* Forecast the pace and stability of Japan's economic and industry growth through end-2019.
* Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
* Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
* Contextualise Japan's country risks against regional peers using BMI's country comparative Risk Index system.
* Evaluate

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