Impact of falling terms of trade on Japan’s growth and deflation
Japan’s terms of trade, which saw steady deterioration until the mid 2010s, have since trended sideways, albeit with substantial fluctuation. The decline reflects Japan’s extreme dependence on imported resources and a drop in export prices amid intensifying global competition.
What you will learn:
- Deteriorating terms of trade has been one of the sources of Japan’s long-term growth stagnation and disinflation. Worsening trading gains have steadily driven down real gross domestic income (GDI) further from already stagnant gross domestic production (GDP).
- From 2005 to 2012, the terms of trade drove down a GDP deflator sharply, delaying a return to positive growth even after the economy had completed the balance-sheet adjustment following the bursting of Japan’s bubbles.
- GDI has been squeezed again due to last year’s commodity price rise, and a GDP deflator continued to decline in 2021. Should commodity prices remain high, the risk of Japan falling into a deflationary trap will become elevated.
Tags:
Related research

Post
Finland’s growth forecast cut amid weak confidence and soaring inflation
We have lowered our 2022 GDP growth forecast for Finland to 1.5% from 1.7% last month, as weakening confidence further dampens the outlook. We expect inflation to peak higher with a greater passthrough to core prices, squeezing real incomes and denting consumption. Russia has accounted for almost 10% of Finland's goods trade, among the highest in Europe.
Find Out More
Post
Why we see eurozone inflation slowing sharply next year
We have revised our 2022 eurozone inflation forecasts sharply higher, to 6.0%, since the start of the Ukraine war, as energy and food prices began to soar and new supply bottlenecks emerged. That said, we still see inflation decelerating sharply to 1.3% in 2023, putting us below consensus. While we recognise significant risks to our views, inflation should slow to below 2% in H2 2023.
Find Out More
Post
Sweden’s growth forecast cut as headwinds to growth mount
We have lowered Sweden's growth outlook for this year to 2.6% from 2.8% amid rising downside risks. The main headwind continues to be high inflation, which is eroding real incomes and private consumption while prompting an accelerated tightening of monetary policy. Despite little direct exposure to Russia and Ukraine, Sweden will be hit by lower growth in Europe, supply bottlenecks and high energy prices. The outlook is subject to significant uncertainty.
Find Out More