Research Team at Nomura, suggests that since the beginning of 2016, market participants have been aware of a number of factors that could damage global economic growth and expects weak growth of the Japanese economy in 2016 H1. Key Quotes “Improvement in employment conditions and waning of inflationary concerns likely to boost consumer spending: However, while Japan is facing instability in external demand, we think domestic demand will be firm. Labor market supply-demand is tight, as is evident from the low unemployment rate. While per capita wage growth is weak, we expect employee numbers to rise strongly in view of companies' continued perception of a shortage of labor and think that total household sector income will continue to grow. We expect lower inflation to boost real incomes and think that consumer sentiment will improve too if food price inflation, in particular, eases. We also think that household consumption is likely to increase as part of the surge in demand ahead of the consumption tax hike scheduled for April 2017. No signs of acceleration in capex growth, but capex still firm: Because corporate capex has already been growing for some time, we think it is unlikely to show signs of accelerating. Nevertheless, judging from the capital stock cycle, we do not expect capex to start correcting of its own accord in the near future either. Uncertainty over the prospects for the global economy is growing, but Japanese capex is now more resistant to external shocks than it used to be, for example because of the improvement in corporate profit margins. Excessive yen appreciation could be a problem because it might reduce the likelihood of domestic capex being carried out as part of the process of reshoring, but this would depend on the degree of yen appreciation. We think that Japan has entered a phase in which domestic capex carried out in the past is beginning to bear fruit and domestic production and exports, particularly in the auto industry, are likely to grow. Expecting additional monetary easing by the BOJ: On 29 January the BOJ decided to adopt QQE with a negative interest rate component. While we do not expect this negative interest rate policy to do much to boost the economy, we nevertheless think that it is at least serving to prevent excessive yen appreciation. We expect the various inflation indicators to weaken as the impact of the rapid depreciation of the yen seen in the past drops out of the picture. We think the BOJ will implement further easing in July once it has ascertained the impact of its negative interest rate policy. We also see a possibility of the central bank implementing further easing before July if the financial markets remain unstable.” For more information, read our latest forex news.