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JPY: Return to recession but no enthusiasm for weaker yen - NAB

FXStreet (Delhi) – Research Team at NAB, notes that the Q3 GDP estimate on 16 November confirmed Japan falling back into recession (if defined as two consecutive quarters of negative growth) and this is for the fourth time since Q3 2010 that the economy has been in recession.

Key Quotes

“In fact, the economy has now spent more time experiencing negative than positive growth in the past five years (eleven of the last twenty quarters). Real GDP has at least expanded during this period but by only 1.9%, so about 0.4% per year on average. This is despite a 30% fall in the yen since Abe’s election.”

“When central bank policy medicine is not seen to have worked particularly well, the typical response has been to increase the dosage. In the case of the Bank of Japan, this last occurred in October 2014.”

“At present, and as evidenced by the latest (19 Nov) ‘unchanged’ BoJ policy decision, there is limited enthusiasm for step-up in the intensity of the current QQME programme, one consequence of which would be to add to downward pressure on the yen. With so much focus on improving business investment, and urging rises in real wages to support consumption, a still weaker yen that would erode Japanese consumers’ purchasing power is not currently on the radar.”

“If USD/JPY falls back down below ¥120, that might change. In the meantime, any further rise in USD/JPY is only likely in the context of a further rise in US Treasury yields. This remains the driver of our ¥125 end-2016 and ¥127 mid-2017 USD/JPY forecasts.”

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