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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Jan 08 2015

Shifting Outlook for Japan

Since January 2013, the month after Shinzo Abe became prime minister, Japan finally exited from deflation and enjoyed a cyclical economic recovery. That recovery was popularly credited to Abenomics, with many believing that it had worked, and would continue to do so. However, most were unaware that ECRI’s Japanese cyclical leading indexes had signaled an end to deflation and an economic recovery before Abenomics appeared on the horizon.

In sharp contrast to the ongoing optimism about Abenomics, in August 2014 ECRI called a Japanese recession, having flagged the risks months earlier. The contraction in second-quarter GDP was generally expected, based on a pullback following the spending increase preceding the sales tax hike. But, then with third-quarter GDP contracting again, nobody “officially” denies the Japanese recession any longer.

Today, the same Japanese leading indexes that correctly called these cycle turns that surprised the consensus have started to show a shifting outlook. In this context, ECRI has just completed an in-depth cyclical analysis of the Japanese economy, assessing our Japan-specific leading indicators for overall economic growth, exports, the industrial sector and inflation. This study clarifies not only the future cyclical direction of each, but also offers insights for other advanced economies exploring their own policy initiatives to boost growth.

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