2019 is poised to be a good year for Japan. While worries about U.S. and China recession risks create global headwinds and uncertainty, domestic Japan is well placed to de-couple from the global cycle and deliver rising employment and increased purchasing power for its people. There are, however, bound to be surprises, i.e., scenarios not captured by the quantitative models of the experts or the consensus opinion of the crowd. For Japan in 2019, the following are the outlier scenarios that I personally worry about. Improbable as they may seem, any movement in their extreme direction will force a true about-face in the current consensus. That's why surprises are so powerful. Enjoy, and best wishes for a prosperous and happy new year.
The 2019 shunto wage negotiations result in a 4 percent pay raise, up from the 2 percent delivered last year.
Japan's economy needs a more powerful engine to drive domestic consumer spending. After years of wage restraint and company unions preferring long-term job stability to short-term wage gains, the labor market has now gotten so tight that wage growth should start to accelerate. If I am right and the 2019 shunto results in a de-facto doubling of last year's pay hike, consumption-led growth could become a reality. The higher the wage hikes, the greater the chances of Japan de-coupling in a positive way from a global downturn.