Katsunori Kitakura, lead strategist at SuMi TRUST, shares his economic outlook for Japan in 2018, commenting on his expectations for continued stability and growth, providing views on Japan’s GDP outlook, political situation and global factors:
“We expect Japan to maintain steady economic growth into next year, with a GDP growth rate of 1.1% for 2018; under the tightening labour market, increased wages will support personal consumption while domestic and external demand for products and services will support economic growth in a balanced manner.
“Although Prime Minister Shinzo Abe’s snap election victory in October ensured political stability for the time being, the progress of Abenomics will be a deciding factor in attempts to reform the constitution next year. Within the 2018 tax reform due to be implemented in April 2018, it is expected the government will increase the tax credit of companies that increase wages by 3% or more and reduce the real corporate tax burden to around 25% (the effective tax rate for corporations is expected to be 29.74%). Encouraging companies to raise wages and capital expenditures from a tax perspective are part of the “structural reform” measures of Abenomics and will be a positive if successful.
“On a global level, as the US and Europe move towards monetary normalisation, the depreciation pressure on the yen will continue due to the difference in the direction of monetary policy. However, given pressure from the US government regarding excessive dollar appreciation, the dollar-yen rate is expected to stay in range (JPY/USD 107-117). As of the end of December 2018, we expect the dollar yen rate to be between 114-116 yen and the euro yen rate to be 136-141. These currency factors are expected to be a positive for the stock market.
“We expect the stock market to remain steady in 2018, driven by key drivers including further progress in structural reforms under a highly stable political environment in Japan, continued monetary easing and stable exchange rate movements. We expect Topix to be around 1800-2,000 and the Nikkei 225 to be around the 23,000-25,500 level by the end of December 2018.
“Based on a solid domestic and overseas economic outlook, there will be continued global capital investment increase in 2018. Stocks in automation, machine tools and semiconductors as well as companies that are expected to be benefitted by “Work Style Reform” such as those providing services or products related to improved productivity, staffing agents and leisure services will be positive.”