Bitcoin Gains to Boost Japan’s GDP by 0.3% as per Nomura Analysts

Even though many financial professionals and analysts have denounced Bitcoins in the past and continue to do so, the cryptocurrency has actually helped Japan to push its economy northwards. As per the latest reports released by Nomura analysts – Yoshiyuki Suimon and Kazuki Miyamoto, Bitcoin’s tremendous rally in the past year 2017 has added 0.3% growth to Japan’s GDP.

The team led by these two analysts reported: “Rises in asset values often result in a rise in consumer spending, too, known as the wealth effect. We estimate the wealth effect from unrealized gains on bitcoin trading by Japanese investors since the start of fiscal year 2017, and estimate a potential boost to consumer spending of 23.2-96.0 billion yen.”

Nomura describes this as the bitcoin “wealth effect” that has contributed to this economic activity. The “wealth effect” is an important term used by policymakers which describes an important channel to influence economic activities. This effect says that when the prices of some assets, houses or stocks start to grow in value, it creates a sense of good feeling in the consumer who in turn is expected to spend more as an impulse response. Due to this, other asset owners start feeling richer and so their consumption habit propels further. The increase in spending will provide fuel to businesses whose products you are buying. In turn, the businesses will spend more to expand its horizons thereby triggering an overall economic activity.

Nomura said that Bitcoin investments have has contributed significantly to wealth creation for its investors and thus this will result in more consumer spending. The investment bank said, “We estimate the wealth effect from unrealized gains on bitcoin trading by Japanese investors since the start of fiscal year 2017, and estimate a potential boost to consumer spending of 23.2 to 96.0 billion yen ($206.0 million to $852.5 million).”

As the majority of gains were experienced in the last quarter of 2017 (as bitcoin prices skyrocketed in Nov-Dec) the wealth effect will be more noticeable raising Japan’s GDP by 0.3%. Nomura said: “…the fact that the rise in bitcoin prices was concentrated in 2017 fourth quarter could result in the wealth effect materializing in 2018 first quarter… we estimate a potential boost to real GDP growth on an annualized quarter over quarter basis of up to about 0.3 percentage points.”

One of the major reasons Bitcoin contribution is being significantly felt is because Japan has been a very active participant in the Bitcoin market since the very beginning. Japan is the most dominating country when it comes to Bitcoin trading volumes, and contribute almost 40% to the global share. The Japanese government is also very crypto-friendly and last year it announced Bitcoin to be a legal currency to be accepted in the country.

In the past year, there has been a huge investor participation in Bitcoin as Deutsche Bank AG notes that Japan’s “retail investors are shifting from leveraged foreign-exchange trading to leveraged cryptocurrency trading.”