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5 Jan 2016
Japan: Struggling to find some traction – BBH
FXStreet (Delhi) – Research Team at BBH, suggests that Japan, the world's third-largest economy, is struggling to find some traction after emerging from the sales tax increase hit.
Key Quotes
“Its budget deficit is large, at roughly 6.5% of GDP. It has by most reckoning full-employment. Its current account surplus has returned to around 3% of GDP, the largest since 2010. Trend growth is estimated around 0.5%.
The BOJ is expanding its balance sheet at an unprecedented pace. It recently announced it would extend the maturities of government bonds that it buys. In the past, this was regarded as more aggressive. It is also ensuring that the shares freed up in the unwinding of bank holdings do not add to the supply of equity by acquiring a roughly equal amount in addition to its current purchases.
At the end of the year, local press reports warned that the BOJ is considering cutting its inflation forecast for FY2016 (beginning April 1) to 1% from 1.4%. The BOJ targets a measure of core inflation that excludes fresh food, though it also is understandably paying close attention to the measure excluding energy as well. However, the BOJ is far from achieving its target. The yen's flat performance last year warns that whatever lift was coming from imported inflation via a weaker currency will likely fade.
With its credibility on the line, the BOJ may choose to expand its operations. If Abe calls for a lower house election at the same time as the upper house election, as has been rumored since mid-2015, in the summer of 2016, it also adds to a powerful force desiring a more robust economic performance.”
Key Quotes
“Its budget deficit is large, at roughly 6.5% of GDP. It has by most reckoning full-employment. Its current account surplus has returned to around 3% of GDP, the largest since 2010. Trend growth is estimated around 0.5%.
The BOJ is expanding its balance sheet at an unprecedented pace. It recently announced it would extend the maturities of government bonds that it buys. In the past, this was regarded as more aggressive. It is also ensuring that the shares freed up in the unwinding of bank holdings do not add to the supply of equity by acquiring a roughly equal amount in addition to its current purchases.
At the end of the year, local press reports warned that the BOJ is considering cutting its inflation forecast for FY2016 (beginning April 1) to 1% from 1.4%. The BOJ targets a measure of core inflation that excludes fresh food, though it also is understandably paying close attention to the measure excluding energy as well. However, the BOJ is far from achieving its target. The yen's flat performance last year warns that whatever lift was coming from imported inflation via a weaker currency will likely fade.
With its credibility on the line, the BOJ may choose to expand its operations. If Abe calls for a lower house election at the same time as the upper house election, as has been rumored since mid-2015, in the summer of 2016, it also adds to a powerful force desiring a more robust economic performance.”