No one is likely to be more amazed by Japan’s explosive growth during the October to December quarter than Shigeru Ishiba, the country’s prime minister.
Ishiba hasn’t had a great deal to observe these last 139 time as president. The poor yen is the only factor that has dropped significantly over his approval score. News that gross domestic product , ( GDP ) grew , at an annualized pace of 2.8 % represents a rare tailwind for Ishiba’s beleaguered government.
But chances are, it’s currently proving no complement for Trumpian challenges zooming Asia’s manner. Just last week, for instance, US President Donald Trump said “reciprocal” tariffs are immediate on top of new taxes on China, Canada, Mexico, steel and aluminum.
As Trump contemplates the next economic grenade, economist Stefan Angrick of Moody’s Analytics says, “don’t break out the champagne simply yet.” Chinese fundamentals don’t have the same vivid appeal as new data suggest.
” The bottom line is that the fourth-quarter GDP transfer is nothing to write home about”, Angrick says. The cheerful headliner conceals a mudstamp on the country’s still-stuck market.
The bigger picture, according to Angrick, is that” use is poor because pay increases have been trailing prices for the better part of three times, and thick inflation has pushed real income rise into the distance.
Legislation uncertainty is an additional concern. Fiscal and monetary policy are straddling a wire between persistent inflation and poor real growth. And with the prospect for global business deteriorating, Japan won’t be able to rely on imports to pick up the slack in 2025.
The GDP numbers, according to economist Kazutaka Maeda of the Meiji Yasuda Research Institute, point to an economy that is “isn’t when powerful” as the headline figures suggest. Particularly personal consumption is cooling.
The currency’s surge in response to Monday’s inside surprise was further complicated Japan’s ability to depend on exports. Chances are higher now that the Bank of Japan may tighten once more and quickly.
” Even though the climb in Q4 GDP wasn’t broad-based, it supports our view that the Bank of Japan will strengthen legislation more violently this year than most anticipate”, create economics at Capital Economics.
As BOJ Governor Kazuo Ueda applies the brake to the home and business confidence, Tokyo’s wind problems may become even more severe. And increase Ishiba’s political wealth.
Ishiba and Trump’s Oval Office conference on February 8 managed to move quickly and without much acclaim. And that’s exactly the concern given the “revenge visit” on which Trump 2.0 is embarking.
The much more significant attention was paid to the gathering Trump had with Indian Prime Minister Narendra Modi days afterward in Washington. Primarily, this may represent expectations that Indian GDP is on record to beat Japan’s on Trump’s view.  ,
But it also leaves much opportunity, if any, for Japan to secure any kind of exemption on Trump’s coming tax onslaught.
Of course, no yet so-called Trump “whisperer” Shinzo Abe pulled that off. The capacity that Abe, excellent minister from 2012 to 2020, struck up with Trump didn’t get Tokyo a slip on Washington’s 2017-2021 taxes. Nor did Abe’s groveling prevent Trump from exiting the Trans-Pacific Partnership, the base of the ruling Liberal Democratic Party’s schedule to include China.
That’s not to suggest Abe failed entirely in his endeavors to calm Trump’s worst feelings. Abe was able to stifle bilateral trade deals, giving Trump the opportunity to get trade talks that ended in a attract. Additionally, he avoided Trump’s requires that Tokyo pay US$ 8 billion yearly to keep US troop levels.
Ishiba didn’t be so wonderful. Trump World is well aware of how unhappy Ishiba’s state is, and his approval ratings haven’t often increased above 30 % since October 1. For another, Trump’s only Asia emphasis these next four times appears to be a big business deal with China.
In the interval, punishment appears to be driving Trump World’s first scheme steps toward Asia. That has Japan Inc. in a whirl, especially the nation’s vital car market.
According to Nomura Research Institute economist Takahide Kiuchi, some Tokyo officials believed that agricultural products were the main subject of mutual tariffs. More lately, Team Trump has refused to rule out targeting trucks. If that happens, Kiuchi says, the beat to Chinese GDP” may be several degrees greater”.
According to World Trade Organization information, Japan maintains a fairly small 3.7 % tax on places that carry most-favored-nation position. On the surface, that may seem to keep “little opportunity for significant increases in tariffs on Chinese goods”, Kyohei Morita, general Japan economist at Nomura Holdings.
Ishiba blatantly endorsed significant increases in the exports of liquefied natural gas and various US goods from his most recent Trump meet. Trump only has a clue about how much of his antipathy toward Japan may emerge and affect trade policy going forward.
Again in , the , mid-1980s, when Trump’s financial opinions seemed to congeal, Japan was cast in , the , character’s position then occupied by China. American media was transfixed over , the , idea of Japan Inc taking over , the , world economy.
Daily press reports explored how Japanese buyers were scooping up New York’s Rockefeller Center, golf courses like California’s Pebble Beach and Hollywood studios. And buying up Rembrandts, Monets, Picassos, Warhols and other masterworks on auction to hang in Tokyo.
Lawmakers and pundits warned of an , economic Pearl Harbor, and of America becoming a commercial” colony” of Japan. As then-business mogul Trump said in an interview at , the , time, Japan had” systematically , sucked , the , blood , out of America — , sucked , the , blood , out! They have gotten away with murder. They have come to the conclusion willing to fight the war.
That is when Ronald Reagan, the then-US president, inaugurated his second term with a mercantilist strategy that still inspires Trump. In 1985, Reagan’s Treasury Secretary, James Baker, managed to cajole , the , most powerful industrialized nations to push , the , yen sharply higher and , the , dollar lower.
The , pact was signed at , the , Plaza Hotel, a New York institution that Trump once owned. Early in his first presidency, then-Treasury Secretary Steven Mnuchin and advisors like Peter Navarro hinted at Trump’s desire for a “new Plaza Accord” that would send , the , Chinese yuan soaring.
That never materialized. A Trump 2.0 White House might indeed give , the , strategy another try. Beijing would surely refuse, enraging Trump World. Beijing knows how , the , 1985 currency deal precipitated Japan’s asset bubble in , the , late 1980s, leading to decades of stagnation.
Trump might not need to change much, though, to become more Japan-skeptic than he once was.  ,
Ueda requested a comprehensive assessment of the potential harm Trump’s policies might have on global trends last week, and instructed BOJ researchers to do the same.
” We cannot understand the impact]of Trump’s trade policies ] on Japan unless we see the whole picture— such as how the overall package, instead of individual policies, would look like and what kinds of policy developments are causing currency fluctuations“, Ueda said.
Yoshimasa Hayashi, the head of Japan’s chief cabinet, stated that” Japan faces significant challenges if its companies become targets in the wake of US President Donald Trump’s policies. The government will carefully respond to any potential effects.”
A gradual recovery, according to Economy Minister Ryosei Akazawa, is the most likely scenario. However, he says,” It is necessary to be mindful of the impact of continued price increases for food and other daily items on consumer spending because consumer sentiment is being negatively impacted by consumer spending.”
What those impacts might be is anyone’s guess right now. ” If economic activity eases unexpectedly, chances , of , further hikes reduce, but if activity holds up, there is a good chance for more”, says Krishna Bhimavarapu, Asia-Pacific economist at State Street Global Advisors.
Bhimavarapu continues,” We expect the Ishiba administration to perform better than general expectations,” but the BOJ outlook “would depend on how the fiscal policy agenda manages to survive the pending ordinary Diet session.” All , of , this is supportive , of , further policy normalization”.
The Daiwa Institute of Research notes for the time being that “various growth factors are observed, including normalization of motor vehicle production. Continued improvements in the income environment, a strong appetite for capex spending on the part of corporations, and a comeback for inbound consumption” were also promising factors.
The outlook for wages is a crucial factor. Saisuke Sakai, chief Japan economist at Mizuho Research, notes that” we need to be cautious” because odds are that income gains adjusted for inflation will be “negative” in the January-March quarter.
How incisive Trump’s trade war strategy and how quickly Tokyo can respond may determine how much. The answer to either question really is anyone’s guess.
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