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Forex Flash: Positive impact of Abenomics evident in Q1 GDP - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the major foreign exchange rates have remained stable in the Asian trading session with the underlying trend of US dollar strength and yen weakness still in place.

He adds that the positive impact of Abenomics was evident in the stronger than expected Japanese GDP report for Q1 released overnight and the report revealed economic recovery in Japan strengthened in Q1 with real GDP growth accelerating to an annualized rate of 3.5% from 1.0% in Q4 of last year. Further, he notes that the upward surprise was driven mainly by external demand with net exports contributing 0.4 percentage points to Q1 GDP growth. Elsewhere, export growth accelerated sharply in Q1 expanding by 3.8% after contracting by -2.9% in Q4 of last year supported by firming demand from Asia.

He feels that a stronger pick up in export growth appears likely later this year as the positive impact of the weaker yen feeds through more materially. Domestic demand contributed 0.5 percentage points to GDP growth in Q1. Private consumption growth was the main driver of domestic demand expanding by 0.9% recording its strongest quarterly growth since Q3 2011. Robust consumer spending growth was driven by a pick up in automobile sales and firm spending on luxury goods. Hardman believes that the positive impact of a weaker yen and rising stock prices have also clearly supported consumer spending.

However, one weak element of the report was private capital spending which declined for the fifth consecutive quarter by -0.7%. Deflation evident in the GDP deflator accelerated further to an annual decline of -1.2% in Q1 compared to an annual decline of -0.7% in Q4 of last year. He finishes by writing, “The release of the MoF’s latest weekly securities transactions report was also released overnight in Japan. The report revealed that Japanese investors continued modest net purchases of foreign bonds in May totaling JPY487.6 billion over the last two weeks until the 10th May. The dominant flow still remains foreign net purchases of Japanese equities which totaled JPY878.8 billion in the latest week, a flow which is likely largely hedged limiting its yen weakening impact.”

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