FXstreet.com (Barcelona) - The Yen has weakened modestly
overnight following the release of the weaker than expected Q3 GDP
report from Japan writes Lee Hardman, Currency Analyst at the Bank
of Tokyo Mitsubishi UFJ.
He notes that the report revealed that the Japanese economy
contracted sharply by 0.9% (3.5% annualised) QoQ in Q3, "the
largest quarterly decline since the earthquake occurred in Q1
2011." The biggest drag on growth was net exports which subtracted
-0.7%, although domestic demand also contracted, subtracting -0.2%
from real GDP.
Hardman continues to note that the weakness in external demand was
driven by a sharp -5% decline in exports and weakness in external
demand was driven by a -0.5% contraction in private consumption and
a -3,2% contraction in capital spending.
He notes that following a downward revision to private consumption
in Q2, it has now contracted for two consecutive quarters and the
report highlights that the Japanese economy has likely re-entered
recession with activity expected to contract more modestly in Q4.
He believes that the increasing likelihood of a renewed recession
is likely to intensify the sense of crisis amongst Japanese policy
makers reinforcing the case for both fiscal and monetary stimulus.
Hardman highlights that the Japanese Government is currently in the
process of implementing modest fiscal stimulus totaling around
JPY750bln (0.16% of GDP). As a result, pressure continues to build
upon the BoJ for further monetary easing having already announced
an additional asset purchase expansion of JPY21 Trillion in 2013 at
policy meeting in September and October.
BoJ Governor spoke before a lower house budget committee today and
reiterated that it has plenty of other assets it can buy to inject
liquidity into financial markets before seeing the need to purchase
foreign bonds. Hardman notes that prior monetary easing undertaken
by the BoJ has had limited impact on weakening the Yen while safe
haven demand for the Yen remains firm and other major central banks
continue to ease policy.
Hardman finishes by commenting, "With investor risk aversion
building heading into year end driven by US fiscal cliff and
euro-zone debt concerns, the negative impact upon the yen from the
Q3 GDP report is likely to prove temporary. In contrast,
speculators remain heavily short the yen anticipating further
weakness in the near-term."