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Japanese GDP growth badly disappoints – BOJ action coming?

Japan’s economy grew by only 0.3% in Q4 2013. The preliminary release of GDP growth was expected to show a rise of 0.7%. This big shortcoming comes on top of a downwards revised growth rate for Q3: 0.3% instead of 0.5% known beforehand.

Also Japan’s GDP price index disappointed with a drop of 0.4%, double the expectations. This shows that the fight against deflation is far from over. Will the Bank of Japan attempt to add further monetary stimulus?

While this is the fourth consecutive quarter of growth and only the preliminary release (it could be revised higher in theory), the shortfall can imply that Abenomics may be running out of steam.

The drop in activity is especially disappointing as it comes before the well planned and well communicated tax hike that is due in April. One would expected stronger economic activity before the tax hike kicks in.

The Bank of Japan convenes tomorrow and is not expected to announce any policy measures. The bad GDP number is not likely to trigger action now, which might be considered as impulsive. However, the Bank of Japan, led by Kuroda, may certainly act in April: one year after the announcement of his monetary blitz.

The fight against deflation is somewhat fruitful, but the economy is not growing as expected. The so called “third arrow” of Abenomics, reforms, is in the realm of the government, and not the BOJ. More stimulus would allow the government more time to handle reform.

At the moment, USD/JPY is falling, as the bad number is likely to trigger weakness in the Nikkei, which is highly correlated with USD/JPY.

If new stimulus is eventually introduced, it would also reverse the direction in USD/JPY.

For more, see the Dollar yen forecast.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.