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Friday, June 21, 2024

What to Expect from Japan’s GDP Release

Key Takeaways:

  • Japan is set to release its Q4 2023 GDP report, with consensus expectations of a 0.3% quarter-on-quarter growth and a 1.1% annualized expansion, marking an improvement from the previous quarter.
  • The divergence in monetary policy between the BoJ and other major central banks could lead to further weakness in the yen against the dollar.

Japan is set to release its GDP report for the fourth quarter of 2023. The consensus expectation is for a 0.3% increase in quarter-on-quarter growth, a significant improvement from the previous quarter’s -0.8%. On an annualized basis, the economy is expected to expand by 1.1%, reversing the -3.3% decline seen in the previous quarter.

The upcoming GDP report could impact monetary policy and the USD/JPY exchange rate. The Bank of Japan (BoJ) has maintained an ultra-accommodative stance, keeping short-term interest rates negative and targeting a 0% yield on 10-year government bonds. Despite the global trend of central banks tightening monetary policy to combat inflation, the BoJ has remained firm in its position to support the economy.

BOJ Monetary Policy

In its January 23, 2024 statement, the BoJ reaffirmed its yield curve control policy, emphasizing the need for “nimble responses” to maintain the target yield on 10-year government bonds. The central bank also extended its special lending program by one year, signaling its willingness to provide continued support to the economy.

A stronger-than-expected GDP report could put pressure on the BoJ to consider adjusting its monetary policy stance. If the economy shows signs of an economic recovery, with inflation moving closer to the 2% target, the central bank may face calls to normalize policy gradually. However, given the BoJ’s cautious approach and the lingering uncertainties surrounding the global economy, any policy shift is likely to be gradual and well-communicated.

GDP for Japan

The GDP report also has direct implications for the USD/JPY exchange rate, which fell by 2% last week. A stronger Japanese economy could lead to increased demand for the yen, as investors seek exposure to the country’s growth prospects. Conversely, a weaker-than-expected GDP report could exert downward pressure on the yen, as concerns about the economy’s resilience may prompt capital outflows.

If the BOJ maintains its accommodative stance while other major central banks continue to tighten, the divergence in monetary policy could lead to further weakness in the yen against the dollar.

Japan’s upcoming GDP report will provide insights into the health of the world’s third-largest economy. The numbers will shape expectations for future growth and influence the direction of monetary policy and the USD/JPY exchange rate.

Lazarus
Lazarushttps://ljlnews.com
Publisher and editor of LJLNews. I am a Stock Market enthusiast, with an interest for politics. I hope you enjoy reading the articles! Contact me at: Lazaruslucas@ljlnews.com

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