Rhythmic Reasoning_Full Report_Final_EN - Flipbook - Page 33
RHYTHMIC REASONING | TEMPO, TIMING AND TUNING
JA PA N
Derek Holt
Walid Khalid
Vice President, Scotiabank Economics
Director, Investment Strategy
1.2 ppts contribution in 2Q25 as exports rose and imports slowed
materially (Fig. 1).
Latest
2024
2025f
2026f
GDP Growth
2.2%
0.2%
1.0%
0.7%
Inflation
2.7%
2.8%
3.0%
1.8%
Unemployment
2.4%
2.5%
2.5%
2.4%
Budget Bal.
-2.0%
-4.0%
-3.4%
-3.3%
Latest
2024
1-yr fwd
2-yr fwd
3-mo yield
0.5%
0.2%
1.1%
1.1%
10-yr yield
1.6%
1.1%
1.9%
2.1%
-3%
Yield curve slope
1.2%
0.9%
0.8%
1.0%
-6%
Fig. 1: Japanese real GDP growth accelerated in
2Q25 as trade-related factors were unwound
6%
QoQ SAAR
3%
0%
3Q24
Source: Scotia Wealth Management, Bloomberg Finance LP.
"Latest" values are as at September 30, 2025 and, for data other than bond yields,
pertain to the most recent monthly, quarterly, or annual reading available on this
date. | Forecasts are based on Scotiabank Economics forecasts dated September
11, 2024 | 2023 inflation and unemployment are based on the average YoY rates
for each month of the year. | 2023 yields are as at December 31, 2024. Forward
periods are relative to September 30, 2025 and are based on forward market pricing.
•
•
•
•
Japan’s economy has posted five consecutive quarters of
growth with momentum expected to continue into 2026.
Household consumption is supported by past shunto
negotiations and may enable prices to sustainably stay at the
BoJ’s long-term target.
Political uncertainty has increased as opposition parties aim
to push through tax cuts and spending initiatives, putting
upward pressure on long-dated yields.
Economic resilience and price growth will likely pave the way
for the BoJ to resume rate hikes in the coming monetary
policy meetings.
JAPANESE ECONOMY SHOWS RESILIENCE TO TARIFFS
Japan’s economy expanded 2.2% on a quarter-over-quarter (QoQ)
annualized basis in 2Q25, twice as high as the preliminary estimate
of 1.0% and accelerating from 1Q’s pace of 0.3%. Household
consumption rose from a stagnant reading in 1Q25 to 1.5% QoQ,
offsetting a slowdown in private investment. The unwinding of
trade-related effects also played a role. In 1Q25, net exports
detracted 3 ppts from the annualized reading as opposed to a
1Q25
2Q25
Private non-res inv
Inventory chg
Public demand
Net exports
Real GDP
Source: Economic and Social Research Institute Japan,
Bloomberg Finance LP, Scotia Wealth Management
The U.S.-Japan trade deal – while not ideal given that levies on
Japanese goods are much higher relative to the pre-Trump era –
has mitigated uncertainty. Most notably, a 15% tariff rate on autos
– which make up a key chunk of total exports to the U.S. (Fig. 2) –
has eased some of the burden given that the administration’s initial
plans had called for a tariff rate of 25%.
Fig. 2: Autos make up a significant chunk
of total Japanese exports to the U.S.
25
20
JPY (trillions)
KEY CONCLUSIONS
4Q24
Private consumption
15
10
5
0
2019
2020
2021
Total auto exports to the U.S.
2022
2023
2024
All other exports to the U.S.
Source: Ministry of Finance Japan, Bloomberg
Finance LP, Scotia Wealth Management
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