Yen edges lower, GDP revised upwards

Japan upgrades FY2022 growth

The markets were treated to some positive news out of Japan, which raised its growth projections for the upcoming fiscal year, which starts in April 2022. The government is projecting growth of 3.2%, up sharply from the July estimate of 2.2%. The upward revision comes on the heels of the supplementary budget which was approved in parliament earlier this week.

On Friday, the government plans to pass the annual budget of 107.6 trillion yen. Japan’s debt is already the highest among developed countries, and this budget will strain the public debt even further. Policymakers are determined to boost sagging economic growth through spending and continuing an ultra-easy monetary policy. The economy contracted by 3.6% y/y in the third quarter, after a resurgence of Covid cases.

Japanese companies, like their counterparts in the US and the UK, have been hit with higher costs, as energy and raw material prices have surged. However, unlike their counterparts abroad, Japanese firms remain reluctant to pass on rising costs to consumers, which has kept consumer inflationary prices in check. The discrepancy in wholesale and consumer prices was massive in October – Core CPI rose a negligible 0.1% y/y, while wholesale prices soared 8.0% y/y, the sharpest rise in over 40 years.

Even with the jump in wholesale prices, the BoJ’s inflation target of 2% remains far off and this is unlikely to change in the near future. The BoJ has stubbornly clung to an inflation target of 2%, unfazed that this target has little chance of being realized anytime soon. As long as inflation remains below the target, the central bank can be expected to continue its ultra-accommodative policy.

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USD/JPY Technical

• USD/JPY is again testing resistance at 114.27. The next resistance line is 114.82
• There is support at 113.16 and 112.60

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