BOJ Warns About The Effect of China’s Slowdown in Japan

China’s economic slowdown is likely to affect Japan’s economy, prompting the Bank of Japan (BOJ) to discuss potential risks posed by the economies of other countries including China at a policy board meeting on July 15.

The BOJ retained its views that Japan’s economy “is recovering moderately” and decided to maintain its ultra-easy monetary policy. But the Japanese central bank revised its growth projection downward from the 2 percent it had forecasted in April in the Outlook for Economic Activity and Prices (the Outlook Report), to 1.7 percent for the current fiscal year ending in March 2016. The downward revision is partly attributable to a downturn in Japan’s exports and industrial production stemming from China’s economic slowdown.

BOJ Gov. Haruhiko Kuroda expressed his optimistic view about the future of the Chinese economy. He said at a news conference after the policy board meeting, “It is true that the pace of China’s growth has been slowing, but I believe the Chinese economy will basically maintain its stable growth as the Chinese government has been implementing economic stimulus measures one after the other.” On the negative impact of China’s economic slowdown on Japan’s exports and industrial production, Kuroda said, “Basically, it is temporary.”

Nevertheless, China is Japan’s second largest trading partner after the United States. Japan’s exports to China accounted for 18 percent of its total exports in fiscal 2014. Japan’s exports to the Association of Southeast Asian Nations (ASEAN), which has major trade transactions with China, made up 15.4 percent of its total exports in that fiscal year. But Japan’s exports to ASEAN have been slowing down and the country’s industrial output in May fell 2.1 percent from the previous month. The sluggish industrial output is attributed to a drop in production of such items as electronics parts for smartphones and auto parts in reaction to decreased demand for such products in China.

via Mainichi

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza