“Japan is changing after three decades of weak GDP growth”

“Japan is changing after three decades of weak GDP growth”


The note from MS focuses on equities, but a few snippets on the currency in amongst it:

Japan is changing after three decades of weak GDP growth

  • We expect gains in macro productivity growth and micro corporate performance
  • Investors cite Japan’s poor demographics, high public debt and healthcare funding hallenges, low private sector capex, and sluggish corporate ROE …  as structural reasons to remain underweight the country
  • But this pessimistic consensus is looking in the rear view mirror and misses important signs of improvement in Japan’s macro and micro performance in recent years.
  • Japan already has one of the G7’s highest growth rates for labour productivity and total factor productivity, deflation has ended, and private capex is rising for the first time since the end of the Bubble Economy era.

For the yen:

  • we think higher productivity growth will increase the opportunity cost of holding foreign assets, leading to repatriation flows, and that the yen will now start to reverse its long-run depreciation in real effective exchange rate (REER) terms
  • Bullish JPY forecasts from our FXstrategists 

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