Japan's economy seen pressured by Trump's TPP plan, protectionist bent: poll

[TOKYO] Japan's economy could face pressure from US President-elect Donald Trump's plan to withdraw the United States from a multinational trade deal and on any protectionism during the New York billionaire' s term of office, a Reuters poll of analysts showed.

Although expectations Mr Trump will boost fiscal spending and set US growth on a higher gear were seen as a boon to Japan, concerns around trade policy under the incoming administration highlighted the world third-largest economy's dependence on exports.

Thirty of 33 analysts in the Reuters poll said Mr Trump's plans to withdraw the United States from the Trans-Pacific Partnership (TPP) trade pact will have an adverse impact on Japan, and raised concerns about his campaign threats to slap import tariffs on Mexico and China.

They were also cautious about a reversal of the yen's recent weakening trend, as global policymakers remained wary about Mr Trump plouging ahead with his fiery campaign rhetoric on trade, immigration and foreign policy when he takes office on Jan 20.

The poll results backed a separate Reuters survey of Japanese corporates earlier in the week that showed well over a third of firms saw risk of a contraction in global trade from a possible rise in US protectionism.

Takeshi Minami, chief economist at Norinchukin Research Institute, said uncertainty about how Mr Trump will set trade policy "will likely have negative impacts on Japan as China and Mexico, where Japanese companies have factories, could be targets."

The poll, taken between Nov 29 and Dec 7 found, also showed a majority of analysts see Japanese exporters benefitting if Mr Trump meets expectations on corporate tax cuts and infrastructure investment

"There are expectations for positive spillover effects to Japan from the US economy under President-elect Trump," Mr Minami said.

Japan's economy grew an annualised 1.3 per cent in July-September, much less than a preliminary 2.2 per cent estimate, as capital expenditure and inventories were revised down.

The economy is expected to expand 1.0 per cent in the fiscal year to March and will maintain that modest growth rate in the next two years, the poll of over 40 economists, taken before the third gross domestic product data were released, found.

Twenty-one of 31 analysts who responded to an extra question on the Bank of Japan's next move still think the central bank will ease further. But ten expect the BOJ's next action will be unwinding its ultra-easy monetary policy, a higher number than in the previous survey.

About 80 per cent of the analysts who expect more easing said it would come sometime in the latter half of next year. Some said the BOJ will do so only if the yen sharply appreciates again.

"We expect the BOJ will continue the current pace of monetary stimulus under the new framework for a while," said Hidenobu Tokuda, senior economist at Mizuho Research Institute. "But there is a chance the BOJ will adopt additional stimulus if the yen spikes."

In September, the BOJ shifted its policy target to interest rates from base money after three years of aggressive asset purchases failed to accelerate inflation to its 2 per cent target.

Medians showed the BOJ keeping its target of 10-year Japanese government bond (JGB) yields at around zero per cent until the end of next year and maintaining the minus 0.1 per cent interest rate imposed on some excess bank reserves.

Some analysts expect the central bank will start cutting the annual pace of increase in outstanding JGB holdings in the second quarter next year from the current 80 trillion yen (S$996.4 billion).

REUTERS