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Japan’s GDP data questioning Abenomics work – DBS

FXStreet (Barcelona) - The DBS Research Team notes today’s GDP data of Japan as shocking and raising doubts on Abenomics.

Key Quotes

“In contrast to Eurozone, Japan’s preliminary GDP contracted 0.4% (QoQ saar) in 3Q while 2Q was revised down to 1.9% from 1.8%. Effectively, Japan entered a technical recession. When these numbers were released this morning, the initial instinct was to take USD/JPY higher because more aggressive policy was needed to revive growth.”

“Today’s shockingly poor data out of Japan raised doubts about Abenomics. Real GDP has returned to around the level when the Bank of Japan (BOJ) first implemented QQE in April 2013. For sure, Japanese voters, households and firms do not want the second sales tax hike scheduled for October 2015.”

“If PM Shinzo Abe intends to call for a snap election next month, he would also need to be mindful that growth in real income of workers households have been falling since the start of QQE1 to 2011 lows.”

“Similarly, sustaining inflation at 2% will only work if the printing and weakening of the yen helps Japanese to earn more at a faster rate than they are paying for their goods and services.”

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