Chris Towner, director of HiFX, comments on Japan’s GDP figures
“As the inflation rate rises so too does the confidence in Abenomics. Armed with a huge quantitative easing programme, Japan has made it its number one priority to get inflation to 2% and steer Japan clear of the inflationary rocks which have been haunting the economy over the last two decades. As inflation pushes higher so too has growth, with Q1 GDP beating expectations by expanding by 1.5%. A lot of this growth has been stimulated by consumer spending as the Japanese have been buying goods before the sales tax hike implemented on April 1st. The sales tax went up from 5% to 8%; however, arguably Japan still has a lot of room to push this up even more so when you compare it to the 20% sales tax rate here in the UK.
“The quantitative easing programme has weakened the Japanese yen over the past 9 months and GBP/JPY has pushed up from levels below 150 last summer to 170 currently. However, now the market is faced with a conundrum. Yes it is true to say that the QE programme should economically weaken the currency as more and more supply of the yen is printed; however, at the same time if growth in the Japanese economy starts to gain momentum then this could lead to more inward investment which should strengthen the currency. Our view is that this has been going on over the past couple of weeks, which has helped to give the yen some stability. Stable currency, higher inflation and solid growth is a good combination for Japan.”