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14 Feb 2013
Forex Flash: GDP report and BoJ meeting have limited impact upon yen – BTMU
Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the yen has remained relatively stable in the Asian trading following a pick up in yen volatility earlier this week initially following the release of the G7 statement on currencies.
His view on the G7 statement remains that other G7 members will accept further yen weakness if it results indirectly from looser BoJ monetary policy to help defeat deflation and re-stimulate the Japanese economy. However, he feels that the other G7 members will not tolerate Japanese policy makers directly talking down the yen such as explicitly indicating desirable levels for the yen.
Furthermore, he notes that the Japanese authorities may only use domestic instruments to meet those domestic targets which highlights that a foreign asset purchasing plan as proposed in the LDP’s election manifesto appears likely to draw international opposition. Given that investor expectations are high regarding the implementation of a foreign asset purchase programme, he feels that it could create scope for policy disappointment undermining the yen weakening trend.
Hardman comments that the case for looser monetary policy from the BoJ was reinforced overnight by the release of the weaker than expected Q4 Japanese GDP report. It revealed that the Japanese economy unexpectedly contracted for the third consecutive quarter by -0.4% on an annualized basis. Weakness in exports and capital investment spilled over from Q3 with both components contracting by annualized rates of -9.9% and -14.0% respectively. He writes, “It offsets a pick up in growth in private consumption and public demand boosted by reconstruction spending which expanded by annualized rates of 1.8% and 2.9% respectively.”
The Japanese economy appears likely to return to growth in Q1 2013 with monthly figures for exports and industrial production having picked up in December. After implementing the new 2.0% inflation target and open-ended asset purchase programme at their last meeting, the BoJ left monetary policy unchanged today with no major changes likely until the new Governor and Deputy Governors are in place at the 4th April meeting. However, Hardman notes that the BoJ did upgrade its assessment for the Japanese economy stating that it appears to have stopped weakening. A proposal by BoJ member Miyao to commit to virtually zero rates until the price target was in sight was voted against by all other BoJ members.
He finishes by writing, “On the issue of the next BoJ Governor the Secretary General of Your Party has reiterated his party’s stance that ex-MoF officials of Muto and Kuroda are not suitable. Your Party hold 12 seats in the Upper House and their votes could be important as the LDP do not hold a majority in the Upper House. Another leading candidate to be BOJ Governor Iwata stated overnight that he favours more long-term JGB and risk asset purchases noting that USD/JPY has now returned to an equilibrium range of 90.00 100.00.”
His view on the G7 statement remains that other G7 members will accept further yen weakness if it results indirectly from looser BoJ monetary policy to help defeat deflation and re-stimulate the Japanese economy. However, he feels that the other G7 members will not tolerate Japanese policy makers directly talking down the yen such as explicitly indicating desirable levels for the yen.
Furthermore, he notes that the Japanese authorities may only use domestic instruments to meet those domestic targets which highlights that a foreign asset purchasing plan as proposed in the LDP’s election manifesto appears likely to draw international opposition. Given that investor expectations are high regarding the implementation of a foreign asset purchase programme, he feels that it could create scope for policy disappointment undermining the yen weakening trend.
Hardman comments that the case for looser monetary policy from the BoJ was reinforced overnight by the release of the weaker than expected Q4 Japanese GDP report. It revealed that the Japanese economy unexpectedly contracted for the third consecutive quarter by -0.4% on an annualized basis. Weakness in exports and capital investment spilled over from Q3 with both components contracting by annualized rates of -9.9% and -14.0% respectively. He writes, “It offsets a pick up in growth in private consumption and public demand boosted by reconstruction spending which expanded by annualized rates of 1.8% and 2.9% respectively.”
The Japanese economy appears likely to return to growth in Q1 2013 with monthly figures for exports and industrial production having picked up in December. After implementing the new 2.0% inflation target and open-ended asset purchase programme at their last meeting, the BoJ left monetary policy unchanged today with no major changes likely until the new Governor and Deputy Governors are in place at the 4th April meeting. However, Hardman notes that the BoJ did upgrade its assessment for the Japanese economy stating that it appears to have stopped weakening. A proposal by BoJ member Miyao to commit to virtually zero rates until the price target was in sight was voted against by all other BoJ members.
He finishes by writing, “On the issue of the next BoJ Governor the Secretary General of Your Party has reiterated his party’s stance that ex-MoF officials of Muto and Kuroda are not suitable. Your Party hold 12 seats in the Upper House and their votes could be important as the LDP do not hold a majority in the Upper House. Another leading candidate to be BOJ Governor Iwata stated overnight that he favours more long-term JGB and risk asset purchases noting that USD/JPY has now returned to an equilibrium range of 90.00 100.00.”