JPY-denominated exports contracted by -8.4% y/y in January, driven by a fall in demand from China (-17.4%) and Western Europe (-6.6%), which led to a significant decrease of sales of manufactured goods (-11%). Meanwhile, deflation fears intensified as inflation came in at just +0.2% y/y in January. Looking ahead, risks are tilted to the downside. The flash Manufacturing PMI suggests that activity contracted in February (48.5 points, after 50.3 in January) reflecting a more challenging international environment as trade uncertainties linger and economic growth in China slows. In that context, domestic demand is set to remain the main growth driver. Household consumption fundamentals are relatively solid with a low unemployment rate (2.4%) and improving wages. Monetary policy will remain supportive. Economic growth is set to rise by a moderate +0.7% in 2019 (the same as in 2018).
