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Japan Revises Q3 GDP Estimate as Markets Question Abenomics

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Japan Revises Q3 GDP Estimate as Markets Question Abenomics

Japan’s economy was weaker in the third quarter than initially forecasted, according to a revised GDP estimate.

Gross domestic product—the total value of all goods and services produced in the economy—expanded at an annualized rate of 1.1 percent in the third quarter, well below the 1.9 percent pace initially reported in November. Economists forecasted a downward revision to 1.5 percent.

The downgrade has raised questions about Abenomics, and whether the world’s third largest economy can win its battle against deflation. Japan’s Prime Minister Shinzo Abe has initiated unprecedented measures to stimulate the slow-moving economy, like increasing government spending and introducing ultra-loose monetary policy that has resulted in the devaluation of the yen by about 25 percent.

The Bank of Japan is quite possibly the best example of Abenomics at work; once reluctant to engage in unconventional monetary policy, the central bank has adopted Abe’s vision by launching an aggressive bond buying program intended to double the nation’s monetary base in less than two years. While CPI indicators show the strategy appears to be working, the jury is still out on the long-term impact of quantitative easing.

While it is far too early to predict recession, market participants are speculating whether Japan will face persistently strong headwinds heading into next year.

“There is no driver of growth,” said Yasunari Ueno of Mizuho Securities. Capital expenditures will remain stagnant, given Japan’s demographic challenges, Ueno added.

The Organisation for Economic Cooperation and Development said Japan will grow 1.8 percent this year, 1.5 percent next year and 1.6 percent in 2015. The Paris-based organization believes Japan will prioritize a “fiscal consolidation plan” in order to achieve a trade surplus in 2020.

In currency news, the US dollar consolidated north of 1.03 yen, bringing it within range of its May high. The pair faces technical resistance at 1.0360; a break above this level exposes 103.86 and 104.12.

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