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Japan’s slow and steady expansion - Wells Fargo

"The pace of growth in the Japanese economy may not be wildly impressive, but the world’s third-largest economy has quietly strung together its longest run of uninterrupted growth in 16 years," explains Wells Fargo Research Team.

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In this report we break down the numbers from the most-recent quarter and consider what the duration of the cycle means for the Bank of Japan (BoJ). On balance we do not expect policymakers at Japan’s central bank to ease back the throttle too much. On the fiscal side of things, some consolidation in recent elections could be interpreted as a vote of confidence in the prime minister’s Abenomics program, although it is unclear if there will be a commitment to needed structural reforms.

High government debt demands the promise of revenue from the pledged increase in the consumption tax, but two postponements are evidence that procrastination may be the most likely course. Taking all these factors into account, our expectation is that GDP is on track for its best full year of growth since 2013 and although the pace may moderate, there is a case for sustained growth in 2018 as well.

Exports Drive Third Quarter Growth

Japan’s economy expanded at an annualized pace of 1.4 percent in the third quarter (Figure 1). Although a slight downshift from the robust rate of growth seen in the prior period, this positive growth rate marks the seventh consecutive quarterly expansion for the Japanese economy. That marks the longest stretch of quarters with consecutive growth in 16 years. The newfound stability in the Japanese economy should remain intact as long as the Bank of Japan continues to maintain accommodative monetary policy.

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