Technical recession in Japan, kicked away by falling crude – MUFG

FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the BoJ is likely to be even less willing to ease monetary policy further in the near-term after the release of the stronger than expected second estimate of Japanese GDP in Q3.

Key Quotes

“The yen and Japan has been beneficiaries from the ongoing plunge in the price of crude oil. The value of petroleum imports has declined by JPY5.4 trillion over the last year to the end October. As a result Japan’s trade deficit has narrowed sharply by around JPY10 trillion over the last year helping to widen the current account surplus back towards 3% of GDP from a negligible deficit in the previous year. The sharp improvement in Japan’s current account surplus is helping to stabilize the yen and dampening the scope for further downside.”

“The BoJ has also been willing to look through the temporary disinflationary impact from lower oil and focus on core inflation trends making it reluctant to ease policy further dampening downside risks for the yen.”

“The report revealed that the technical recession initially estimated in Q3 was revised away. Real GDP growth was revised upwards to an above trend annualized expansion of 1.0% in Q3 from an initially reported contraction of -0.8%. The main upward revisions were to capital investment growth which expanded by an annualized rate of 2.3%, and the drag from inventories was also significantly lowered cutting only -0.2 point from GDP. The annual rate of real growth has accelerated to 1.7%.”

“Nominal GDP growth is proving even stronger revised upwards to an annual rate of 3.5% boosted by the improvement in Japan’s terms of trade from the plunge in the price of crude oil. It is the fastest annual rate of nominal GDP growth since Q3 2010. The developments support our view that the yen may gradually firm in the year ahead. It eases pressure as well on the government to implement more aggressive fiscal stimulus to support economic growth in the near-term. According to media reports it is expected to implement a supplementary budget totalling around JPY3.3 trillion.”

Lee Hardman, Currency Analyst at MUFG, suggests that the BoJ is likely to be even less willing to ease monetary policy further in the near-term after the release of the stronger than expected second estimate of Japanese GDP in Q3.

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