Japan: More weak data points to USD/JPY policy divergence - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that while they believe there are grounds for the Fed to now hike rates, data from Japan today highlight the fact that speculation of additional monetary easing by the BoJ is likely to persist given weak economic conditions.

Key Quotes

“The corporate capex data for Q2 today revealed a slowdown in annual capex growth from 4.2% in Q1 to 3.1%. The market consensus was for a pick-up to 5.5%. Furthermore, corporate profits plunged 10.0% in Q2, which was the largest drop since Q4 2011 and highlights the negative impact the surge of the yen in Q2 had on company profit growth. Company sales fell 3.5%, which was slightly larger than the 3.3% drop in Q1 and was the largest drop since Q1 2013.

With PM Abe’s reform agenda based in part on getting companies to lift wage growth, today’s data highlights the difficulty of pushing forward with a key aspect of ‘Abenomics’.

The data will also up the pressure on the BoJ to announce measures under its “Comprehensive Assessment” of monetary policy that can convince the markets that it still has options within its toolkit to implement further easing. We remain sceptical however and hence are not convinced of any sustainable move to the upside for USD/JPY materialising.”