Japan, a complex mix: GDP falls, Yen strengthens, current account balance positive. Will the BoJ really adjust rates now?
Yesterday the news was the strengthening of the Yen on rumors that the BoJ would increase interest rates. Today the economic data is going in the opposite direction.
Japan's GDP contracted 0.7% quarter-on-quarter in the third quarter of 2023, compared with a flash figure of a 0.5% contraction and following downwardly revised growth of 0.9% in the second quarter .
This was the first GDP contraction since the third quarter of 2022, against a backdrop of elevated cost pressure and growing global headwinds. There were declines both in private consumption (-0.2%, compared to a flat reading in the preliminary data and in the second quarter figure of a decline of 0.6%) and in capital expenditure (-0.4 %, compared with a 0.6% decline in a flash reading and a second-quarter print of a 1.3% decline).
Furthermore, public investment fell more than initially expected (-0.8%, compared to a 0.5% decline in preliminary data and following 1.5% growth in the second quarter). Net trade also represented a drag on GDP, as exports (0.4% versus 3.8% in the second quarter) increased less than imports (0.8% versus -3.3%). Meanwhile, government spending increased 0.3%, in line with preliminary data and following a 0.1% decline in the second quarter .
On a quarterly basis the trend was as follows:
On an annual basis, the fall in GDP is clearly visible , indeed much stronger:
The problem is consumption, but, at the same time, these are the data from the previous one, the third, which arrived a little late. It could also be possible that in the last three months of the year, also based on the salary increases granted by large companies between the end of 2023 and the beginning of 2024.
The fact is that the rumors about the BoJ's change in positioning are succeeding despite the bad news about the economy:
In the meantime, the current account is and remains positive
We are in the ninth month of positive current accounts, with an only slightly negative trade balance , but still a very important inflow of resources. Perhaps this continuous positive current account data is the cause of the strengthening of the Yen, more than the voices of the BoJ.
At the same time I have some doubts that these exchange rate items in the positioning of monetary policy were diffused precisely to prevent the effect of the very negative data on GDP, to prevent these from having an impact on the currency . After all, the Central Bank certainly had forecasts on what the economic growth data would be. Why not prevent them?
In short, Japan always appears to be a puzzle, but this is probably how an economy should be governed, without saying too much.
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The article Japan, a complex mix: GDP falls, Yen strengthens, current account balance positive. Will the BoJ really adjust rates now? comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/giappone-un-mix-complesso-pil-cade-yen-si-rafforza-bilancia-partite-correnti-positiva-ora-la-boj-veramente-ritocchera-i-tassi/ on Fri, 08 Dec 2023 08:30:04 +0000.