• 
• See all for FXstreet.com
• View Print Version

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.

Related Forex and Currencies Articles

• 
  U.S stocks end mixed on manufacturing data; Dow gains 0.06%
  5/24/2013 01:25 PM
• 
  Forex - Dollar erases gains earned on factory data, dips as stocks rise
  5/24/2013 11:25 AM
• 
  Gold falls as order for U.S. durable goods surprise on upside
  5/24/2013 10:25 AM