Waiting for Ueda – Commerzbank

Although this morning’s third quarter GDP figures came in a little better than analysts were expecting according to the Bloomberg survey, a closer look leaves something to be desired. The Japanese Yen (JPY) was hence unimpressed this morning, despite another attempt at verbal intervention from the Ministry of Finance, which warned against ‘one-sided’ movements in the exchange rate, Commerzbank’s FX analyst Volkmar Baur notes.

USD/JPY is likely to continue to be driven more by the USD

“The 0.9% quarter-on-quarter annualised increase was, as mentioned, slightly better than expected, but the previous quarter’s growth was revised down, meaning that the overall growth trajectory appears weaker than previously thought. In addition, inventory accumulation appears to have made a small positive contribution to growth – a component that tends to balance out over time. The weakness came mainly from the external sector, where net exports made a significant negative contribution to growth.”

“Fixed capital formation was also down, while consumption supported growth. All in all, the GDP figures do not paint a picture of an economy gaining momentum or in danger of overheating, which would require a tightening of monetary policy. All eyes are therefore now on BoJ Governor Ueda’s speech on Monday, one of the last opportunities before the blackout period to verbally prepare the markets for a possible rate hike in December.”

“I have long assumed that the BoJ will raise rates again in December, as it is unlikely to be any easier to find good reasons to do so next year. However, I now see a clear risk to this assumption. Political risk has not exactly diminished since the last BoJ meeting two weeks ago. A US trade war focused on China would not leave Japan unscathed, as it is an important trading partner of China. On the domestic front, it remains to be seen how the new minority government will handle its unfamiliar situation. If there is no rate hike in December, USD/JPY is likely to continue to be driven more by the USD side, which currently points to higher USD/JPY levels.”