Analysis of Japan’s Third Quarter GDP Figures and Implications for USD/JPY
Today’s release of Japan’s third quarter GDP figures may have initially appeared slightly better than anticipated, but a deeper analysis reveals underlying weaknesses that could impact the USD/JPY exchange rate. Let’s break down the key takeaways:
GDP Growth Analysis
- The 0.9% quarter-on-quarter annualised increase exceeded expectations, but a downward revision of the previous quarter’s growth indicates a weaker overall growth trajectory.
- Inventory accumulation made a small positive contribution to growth, a factor that tends to balance out over time.
- Weakness in the external sector, with net exports making a significant negative contribution to growth.
- Fixed capital formation declined, while consumption supported growth.
Monetary Policy Outlook
The GDP figures do not suggest an economy gaining momentum or at risk of overheating, which would necessitate a tightening of monetary policy. All eyes are now on BoJ Governor Ueda’s upcoming speech for potential insights into a December rate hike.
Potential Risks
- Political uncertainties, both domestically and internationally, pose risks to the assumption of a December rate hike.
- A US-China trade war could impact Japan, a key trading partner of China.
- The new minority government’s handling of its situation remains uncertain.
USD/JPY Outlook
If a rate hike does not occur in December, USD/JPY is likely to be influenced more by USD dynamics, potentially leading to higher USD/JPY levels.
Implications for Investors
For investors and traders, understanding the nuances of Japan’s GDP figures and the potential impact on the USD/JPY exchange rate is crucial for making informed decisions. Keep a close watch on upcoming developments, such as Governor Ueda’s speech and geopolitical events, to navigate potential market shifts.