Danske Bank analysts point out that for the Japanese economy, demand has been slowing and a record fiscal budget will keep the economy afloat in 2019, along with hoarding effects in the run-up to the VAT hike in October.

“From 2020 onwards, the economy will have to find support abroad to keep growing. We expect GDP growth of 1.0% in 2019 and 0.5% in 2020 and 2021. With a shrinking population, exports are key to growth, even if the Japanese economy is quite closed. A rebound in global growth therefore remains paramount to the outlook. The VAT hike poses a risk to domestic demand, although the impact should be much smaller than after previous tax hikes. Future trade negotiations between the US and Japan could also cause some turbulence. The inflation outlook still looks modest and we expect the Bank of Japan to remain on hold through 2021.”