Why Japan is Asia's 'most dramatic economic story'
It's GDP growth is pegged at 1% this year.
According to Moody's, the region's most dramatic economic story is unfolding in Japan, where the newly elected government has moved to end two decades of stagnation and perhaps, in a best-case scenario, to achieve fiscal sustainability.
Coordinated fiscal and monetary policies, including openended quantitative easing and a doubling of the Bank of Japan's inflation target to 2%, have already lifted financial markets and brightened the outlook for the real economy.
Here's more from Moody's:
These long-overdue developments have prompted an increase in our forecast for Japan's GDP growth to 1% this year and 1.8% in 2014.
The inflation forecast has been lifted to 0.3% in 2013 and 1.3% in 2014, still below the BoJ’s revised target, as we expect entrenched expectations to cap price growth. The central bank's revised estimates see CPI inflation under the 2% target until the fiscal year ending in March 2015.
The BoJ's latest moves bring some added risk. Japan's fiscal situation is unsustainable. If bond investors start to price in higher inflation, yields could rise and the government's debt burden could quickly become unsustainable.