HH 2017: Ten Surprises For Japan

It is the time of year when economists and strategists present their forecasts and baseline scenarios for the year ahead. Quantitative forecasts are based on de-facto probability models; and qualitative scenarios are based on, well, a combination of experience and common sense. Either way, most methodologies leave little room for a discussion of true outliers and true surprises.

This list “2017: Ten Surprises for Japan” is trying to address this deficiency. They are the scenarios that I personally worry about for Japan investment implications. By definition, these 10 surprises are events or scenarios far from the consensus mean and outside one—or even two—standard deviations. Their primary purpose is to make the reader think. Improbable as they may appear, any movement toward their far-out direction may still dictate an about-face in market consensus. Enjoy, and best wishes for a successful and happy 2017.


1)  Trump makes America great again—U.S. gross domestic product (GDP) grows 4.5% in 2017

For Japan, America’s economy remains by far the single most important global force: almost 25% of TOPIX earnings are generated from selling to the U.S.1 The combination of a U.S. growth surge, cuts in U.S. corporate taxes and a strong dollar would be a welcome “triple merit” boost for Japanese corporate earnings in 2017, in our view.

2)  China’s Communist Party gets realistic and cuts China’s official GDP growth target to 5.5%

The Chinese Communist Party will hold its 19th National Congress in the fall of 2017. While a key focus will be the potential reshuffle of leadership positions, the top-down approved guidelines and goals for China’s economy will also become important inputs for global economic and financial dynamics. A surprise would be if the official growth target got cut to below 6%—say, 5.5%. In our view, this would be positive for global markets, because a) it is much more in line with many private economists’ estimates of the sustainable Chinese growth potential, and b) it reduces the risks of a Chinese currency devaluation: the higher the official growth target, the bigger the temptation of Chinese policy makers to use currency devaluation as a tool to achieve that target, in our view. In 2017, any reduction in Chinese devaluation risk is positive for global risk assets in general, and Japanese equities in particular, in our view.  

3)  Prime minister Shinzo Abe and the Bank of Japan (BOJ) introduce “J-Coin,” a blockchain-based cyber-currency designed to set the global standard

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Bill Johnson 4 months ago Member's comment

This is an excellent list for those interested in the Japanese market.

Moon Kil Woong 5 months ago Contributor's comment

The use it or loose it stance is absurd. Penalties for holding cash are by their nature anti-capitalistic and disruptive to a free and fair market. Inevitably they harm the whole system. If they want companies to invest they must enable the creation of opportunities for growth that present a fair and legitimate avenue for growth. Then they need not force investment. Companies will invest willingly.