FXstreet.com (Barcelona) - Economic fundamentals have become
less supportive for the Japanese Yen notes Nick Bennenbroek, Head
of Currency Strategy at Wells Fargo.
He sees that GDO contracted at a 3.5% QoQ annualised rate in Q3,
and most economic indicators have remained downbeat since. November
industrial output fell by 1.7% MoM and 5.8% YoY, , and the Q4
Tankan survey reported softening confidence in both the
manufacturing and services sectors. In that survey, the large
manufacturers' index fell to -12, the weakest reading since the
start of 2010, while the non manufacturers' index fell four points
to +4. He adds that inflation pressures have remained absent, with
the November CPI excluding fresh food falling by 0.1% y/y.
Bennenbroek notes that against this economic backdrop, the BoJ has
adopted an increasingly accommodative monetary policy stance. The
central bank increased its asset purchase target by Y10trn in
September, Y11trn in October and Y10trn in December, lifting the
purchase target from Y45trn to Y76trn. Consequentially, the
expansion of the BoJ´s Balance sheet has accelerated to reach 34%
of GDP and is set to rise faster.
He also notes that political factors have also contributed to the
central banks easy policy stance. New PM Abe has called for
'unlimited easing' from the central bank, and the incoming
coalition government has agreed to an inflation target of 2%,
compared to the central bank's current target of 1%. As a result,
the BoJ said it would consider at its January meeting "the medium
to long term price stability that it aims to achieve in the conduct
of monetary policy."
Looking from a broader policy perspective, the new government´s
comments against excessive Yen strength have also been more
strident than previous. However, he comments that finally, the
government is planning to adopt a more expansive fiscal policy,
with the finance minister likely to draft a sizeable supplementary
budget during the current month.