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The Japanese economy is expected to growth 0.9 percent through this year, while in 2020, the consumption tax hike will likely weigh on growth but the impact should be much smaller than after previous tax hikes; growth in 2020 is expected to end up at 0.5 percent, according to a recent report from Danske Bank.
Private demand is picking up and the economy is becoming more self-driven and less dependent on foreign demand.
Japan's biggest trading partners are the US and China. The trade war thus poses a risk to the current economic recovery. In our view, the planned October 2019 consumer tax hike is likely to derail growth but the negative impact should be fairly short-lived as mitigating measures are in place.
"With reflation nowhere in sight, we expect the Bank of Japan to stay on hold through 2019 and 2020," the report further noted.
