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Snap Japanese Election To Focus On Economy

James Boston
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Snap Japanese Election To Focus On Economy

The Governor of the Bank of Japan (BoJ), Haruhiko Kuroda, has recently completed his post monetary policy committee press conference in Tokyo, The tone of the Governor’s outlook for the Japanese economy was decidedly upbeat despite the country earlier this week slipping into recession. There was no change in policy at today’s BoJ meeting where the key interest rate was left unchanged at 0.1%. The Bank also announced that it would continue it’s quantitative easing program at the expanded pace announced last month, this program now includes Government bonds, Exchange Traded Funds (ETF’s) and Japanese Real Estate Investment Trusts (J-REITS). Of the 9 member monetary policy committee there was only one dissenter, T. Kiuchi, who favoured less agressive quantitive easing action such as the one that was in place before last month’s expansion.

On Monday of this week it was confirmed that the Japanese economy has slipped back into recession. The third quarter GDP contraction of -0.4% confounded analysts that had been anticipating growth of around 0.5%, this latest reading follows the second quarters revised fall of -1.9% to confirm that the country has entered a recessionary phase.

The economic struggles of the world’s third largest economy are well documented. The Prime Minister, Shinzo Abe, pledged a three pronged approach to repairing Japans’s economy when elected in 2012, the latest GDP numbers however would appear to raise serious questions around the effectiveness of Abe’s approach. The three elements of the ‘Abenomics’ plan are monetary stimulus such as that being enacted by the BoJ, fiscal stimulus to include massive borrowing and government spending, and a program of structural reform. It is the latter of these that is proving the most difficult to implement and in a bid to clear the block Abe has just announced a surprise election, this will in effect serve as a referendum on ‘Abenomics’.

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