By Stephanie Tsui
The Japanese economy is widely thought to be remarkably insular, since its trade sectors only contributed around 35% to its 2014 GDP, much lower than OECD’s average level of 55%. The Trans-Pacific Partnership (TPP) agreement is expected to be a potential catalyst for an opening up of the Japanese economy, according to Govinda Finn, Senior Japan Analyst, Standard Life Investments.
With 67% of industrial goods categories becoming tariff-free, strikingly up from the present level of 39%, the reduction in tariffs on industrial products will significantly boost Japanese export activity, Finn said. He believed high-tariff sectors like auto firms would become major beneficiaries. The Cabinet Office estimated that a JPY 2.6 trillion of exports would be increased over the 10 years after it takes effect.
In addition, greater export activity is expected to drag in JPY 500 billion of investments, thanks to the protection of intellectual property, a key component of the TPP agreement.
Under the agreement, the Japanese domestic markets should open up as well. As such, the government estimated a JPY 2.9 trillion boost to imports. “Not surprisingly, given that the import barriers (including non-tariff measures) are highest for agricultural products, it is this sector that is deemed the most likely to prove a source of import growth,” Finn noted.
A rise in agricultural imports will increase competition and bring down food prices. He expected Japanese household income to rise as a result, which will in turn help to support consumption trends. The government estimated the TPP agreement would boost private consumption by JPY 3 trillion.
However, according to Finn’s estimation, the elimination of tariffs through TPP is to push down Japanese CPI by nearly 1%.The Japanese core consumer prices fell 0.1% in August y-o-y, the first annual drop in two and a half years, while the government is struggling to combat the deflation that has plagued Japan for two decades. BM