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Japan: Looking up as 3Q GDP set to be revised upwards - ING

FXStreet (Delhi) – James Smith, Economist at ING, suggests that the Japanese third quarter GDP looks set to be revised upwards, based on stronger capital investment, possibly indicating that a technical recession was avoided after all.

Key Quotes

“The capital investment element of the latest MoF’s Financial Statements survey (a reasonable directional indicator of investment in the national accounts) was unseasonably high. We therefore expect the initial negative reading of private investment to be reversed, albeit perhaps by less than the 1% quarterly gain the consensus is looking for. This would also tally with the spike in core machinery orders seen earlier in the year.”

“On this basis, and assuming that the other components of GDP remain largely unchanged, we think growth remained broadly flat in the third quarter (up from -0.8% QoQ Annualised). Going forward, it is worth highlighting that new orders have been lower over recent months and given this year’s uncertainty surrounding China, this improvement in private investment is unlikely to persist in the near-term. However, other areas of the economy remain relatively robust and we currently look for a modest rebound in growth in the fourth quarter.”

“Overall, this GDP data will alleviate some of the pressure on the BoJ to add stimulus at its December meeting, although it is unlikely that we will see any meaningful change in policy or rhetoric before the next bi-annual outlook report in April. Although the economy remains fragile, Abe’s government is wary of pressing for further QQE and thereby instigating further Yen weakness (particularly with elections next summer). Thus far, this has hit consumers through higher food prices, whilst underlying productivity issues have largely prevented an increase in export volumes.”

“Against our expectation that the Fed’s tightening cycle will be more aggressive than the market is currently pricing, there is some limited potential for a further upward movement in USD/JPY during the first half of 2016. As such, any additional stimulus over the coming weeks is likely to be delivered in the form of a supplementary budget, as Abe’s government tries to inject some fresh energy into the “third arrow” ahead of next summer’s elections.”

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