Japan: Blowin’ in the wind – BNPP

Research Team at BNP Paribas notes that the Japan’s GDP growth surprised on the upside in Q3, as exports rose solidly and the recent improvement in the global cycle and expected US fiscal expansion suggest the Japanese economy will grow more strongly in 2017 than previously expected.

Key Quotes

“Stronger global growth and a weaker yen, thanks to higher US rates, are tailwinds for the Bank of Japan (BoJ), which has run out of viable policy options and in September effectively switched to a waiting game of yield-curve control.”

“But structural factors and entrenched expectations of zero inflation should prevent wages rising significantly. A weak yen is also unlikely to boost capex. As such, the BoJ is unlikely either to ease or to tighten policy in the foreseeable future.”

“Speculation about additional easing has waned and will return only if global conditions worsen. For the time being, we see a risk that the BoJ could start to raise the target for the 10-year rate or tolerate larger upward deviation.”

“A weaker yen boosts inflation, but its benefit to growth is questionable when the economy is already at full employment. If the yen weakens much further, households would probably object, which might prompt the BoJ to start adjusting its policy.”