Forex News – Japanese 4th quarter GDP growth misses estimates but news does not hurt yen
February 17, 2014 1:04 pm
Japanese economic growth numbers disappointed earlier in the day, as expectations of quarter-on-quarter GDP growth of 0.7% weren’t met. Growth came out at a much lower 0.3%. For 2013, economic growth averaged slightly more than 1.5%.
There were two key reasons for the lower-than-expected growth. First of all, private consumption underperformed by rising 0.5% against expectations of a 0.7% increase. Japanese consumers were expected to ramp up consumption ahead of this April’s sales tax hike from 5% to 8%.
Secondly, external demand or net exports was an even bigger drag on growth than feared as it contracted by 0.5% compared to expectations of a 0.4% contraction. The weak yen has not helped to boost Japan’s exports as much as was hoped for, while the high cost of fossil fuel imports is a problem for Japan’s economy following the closure of nuclear power stations.
Capital expenditure on the other hand was up 1.3% quarter-on-quarter; the fastest growth rate in two years but also much lower than the 1.9% expected by economic forecasters.
During the 2014-2015 fiscal year, economic growth is expected to slow to just 0.7%, as a result of the sales tax increase and the economy’s slowdown.
Elsewhere for the Japanese economy, it will be very interesting of course to watch what will happen to inflation and whether it manages to climb further closer to 1.5% in coming months. Another key point is whether companies will hand out wage increases to their employees, which in turn will help to blunt the negative effect of the sales tax increase.
Some economists are skeptical of the effectiveness of Prime Minister Abe’s “3 arrows” strategy which consists of monetary stimulus, fiscal stimulus and structural reforms. In particular, they criticize the slow pace of structural reforms.
The weaker economic growth figures could be discussed in the Bank of Japan’s meeting on Tuesday. Governor Kuroda is expected to explain the Bank’s position in a press conference following the meeting. Although market analysts expect the BOJ to keep to its current pace of asset purchases (or QE) for now, some economists now expect the BOJ to increase the pace of monetary stimulus later in 2014. This will be a key focus for the yen in coming quarters – that is whether the BOJ will increase stimulus or not.
In the aftermath of the release, the yen actually strengthened, driving the dollar down to 101.40 compared to 101.75 prior to the announcement, as the Japanese currency benefitted from safe haven demand. Contrary to consensus expectations, the yen has managed to gain around 3% year-to-date against the dollar.
Japanese economic growth numbers disappointed earlier in the day, as expectations of quarter-on-quarter GDP growth of 0.7% weren’t met. Growth came out at a much lower 0.3%. For 2013, economic growth averaged slightly more than 1.5%.
There were two key reasons for the lower-than-expected growth. First of all, private consumption underperformed by rising 0.5% against expectations of a 0.7% increase. Japanese consumers were expected to ramp up consumption ahead of this April’s sales tax hike from 5% to 8%.
Secondly, external demand or net exports was an even bigger drag on growth than feared as it contracted by 0.5% compared to expectations of a 0.4% contraction. The weak yen has not helped to boost Japan’s exports as much as was hoped for, while the high cost of fossil fuel imports is a problem for Japan’s economy following the closure of nuclear power stations.
Capital expenditure on the other hand was up 1.3% quarter-on-quarter; the fastest growth rate in two years but also much lower than the 1.9% expected by economic forecasters.
During the 2014-2015 fiscal year, economic growth is expected to slow to just 0.7%, as a result of the sales tax increase and the economy’s slowdown.
Elsewhere for the Japanese economy, it will be very interesting of course to watch what will happen to inflation and whether it manages to climb further closer to 1.5% in coming months. Another key point is whether companies will hand out wage increases to their employees, which in turn will help to blunt the negative effect of the sales tax increase.
Some economists are skeptical of the effectiveness of Prime Minister Abe’s “3 arrows” strategy which consists of monetary stimulus, fiscal stimulus and structural reforms. In particular, they criticize the slow pace of structural reforms.
The weaker economic growth figures could be discussed in the Bank of Japan’s meeting on Tuesday. Governor Kuroda is expected to explain the Bank’s position in a press conference following the meeting. Although market analysts expect the BOJ to keep to its current pace of asset purchases (or QE) for now, some economists now expect the BOJ to increase the pace of monetary stimulus later in 2014. This will be a key focus for the yen in coming quarters – that is whether the BOJ will increase stimulus or not.
In the aftermath of the release, the yen actually strengthened, driving the dollar down to 101.40 compared to 101.75 prior to the announcement, as the Japanese currency benefitted from safe haven demand. Contrary to consensus expectations, the yen has managed to gain around 3% year-to-date against the dollar.
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