Japan's Cyclical Outlook and Abenomics
Three months ago, based on its forward-looking Japanese Long Leading Index (JALLI), ECRI recognized a new Japanese growth rate cycle downturn that was underway. Sure enough, in December, not only did the third quarter GDP revisions disappoint the consensus, but the Japanese government also predicted that GDP growth would slow to 1.4% in 2014 from 2.6% in 2013. This confirmation of ECRI’s outlook came in sharp contrast to optimism about the three arrows of Abenomics: monetary, fiscal and structural reforms.
Our latest analysis highlights important trends in key aspects of GDP growth that have not been recognized elsewhere, underscoring the necessity for reliable leading indexes like the JALLI to stay ahead of shifts in the Japanese economy.
Notably, the 2013 stock market rally was always predicated in significant measure on optimism about the third phase of Abenomics, the structural reforms that have yet to materialize.