strong improvements expected in Japan's export volumes and fiscal deficit

Japan's weak export volume growth has often been attributed to corporates losing their international competitiveness, making them unable to increase their export volumes despite the depreciation of the yen. However, recent trade data shows that Japan's exports by volume has improved substantially.

Looking at the deviation from the USD/JPY exchange rate trend, we can find similaritiesbetween the situation of the USD/JPY in the previous cycle that began in July 2004 and thecurrent cycle, which began in January 2012. We can also find similarities in the real exportstrend between these cycles.

In the previous cycle, it took almost three years to see large growth in real exports (adeviation from the trend) after the yen started to depreciate. 

"In 2015, we expect the US economy to continue to recover firmly, supporting Japan's export volume growth. This will reverse the widely perceived view that Japanese corporates are losing their international competitiveness", says Societe Generale.

"There is a widely shared belief that Japan's fiscal deficit is unsustainably large and will noteasily improve even if economic recovery progresses. However, we believe the fiscal deficit will likely shrink rapidly", added Societe Generale.