15 Feb 2016
JPY: 4Q15 GDP shows contraction, pressurizing BoJ to ease more – ING
James Smith, Economist at ING, notes that as expected, Japan's economy ended the year on a slightly sour note.
Key Quotes
“On an annualised basis, the economy contracted by 1.4%, slightly worse than our forecast of -1.2%. Looking at the breakdown, much of the fall is attributable to consumption. Warm weather is likely to have been a major factor, although the magnitude of the decline (-0.8% QoQ) suggests that there may be something more concerning going on underneath.
More encouragingly, business investment rose by 1.4%, although the outlook going forward looks less positive as continued concerns surrounding Chinese growth and the recent market turmoil is likely to weigh on confidence. It is worth noting that these GDP figures are often subject to pretty hefty revisions, so we will need to see the next release before making any firm conclusions.
Overall, the economy grew by only 0.4% in 2015, underlying the fragile nature of growth in Japan - something which will maintain pressure on the BoJ to implement further near-term stimulus. That said, most of the attention going into the January meeting and more importantly, almost all of the attention since, has been on the appreciating Yen.
Although recent comments from MoF officials suggest that they have a close eye on recent JPY moves, our FX team see direct JPY intervention as unlikely at current levels, partly because of the political challenges of such a policy following the recent TPP deal and given the forthcoming US election. However, further action at the March BoJ meeting now looks fairly inevitable, with a further rate cut likely to be the main channel of stimulus.”
Key Quotes
“On an annualised basis, the economy contracted by 1.4%, slightly worse than our forecast of -1.2%. Looking at the breakdown, much of the fall is attributable to consumption. Warm weather is likely to have been a major factor, although the magnitude of the decline (-0.8% QoQ) suggests that there may be something more concerning going on underneath.
More encouragingly, business investment rose by 1.4%, although the outlook going forward looks less positive as continued concerns surrounding Chinese growth and the recent market turmoil is likely to weigh on confidence. It is worth noting that these GDP figures are often subject to pretty hefty revisions, so we will need to see the next release before making any firm conclusions.
Overall, the economy grew by only 0.4% in 2015, underlying the fragile nature of growth in Japan - something which will maintain pressure on the BoJ to implement further near-term stimulus. That said, most of the attention going into the January meeting and more importantly, almost all of the attention since, has been on the appreciating Yen.
Although recent comments from MoF officials suggest that they have a close eye on recent JPY moves, our FX team see direct JPY intervention as unlikely at current levels, partly because of the political challenges of such a policy following the recent TPP deal and given the forthcoming US election. However, further action at the March BoJ meeting now looks fairly inevitable, with a further rate cut likely to be the main channel of stimulus.”