President-elect Donald Trump isn’t even in office yet, and he’s already delivered a helpful boost to the economy -- the Japanese economy. At the end of a year of gloomy announcements, the Bank of Japan has raised its growth forecast for next year, and Trump deserves much of the credit.
The main reason for the BOJ’s improving mood is the fall in the yen, which will help boost Japanese exports. And the main reason for the fall in the yen? The strong dollar -- reflecting in part the prospect of Trumpian tax cuts and new infrastructure investment, which would increase U.S. public borrowing and accelerate the coming rise in U.S. interest rates.
The BOJ’s optimism, to be sure, is relative. The government’s revised forecasts put growth next year at 1.5 percent rather than1.2 percent. That’s hardly spectacular. Yet as recently as September, with the policy interest rate already negative and the economy failing to respond, the outlook seemed bleaker.
With inflation still close to zero despite four years of such extraordinary measures, Japan’s economic recovery is still a long way off. But confidence matters a lot in breaking out of a low-growth trap, and every little bit helps.
Reference: Bloomberg
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