According to analysts from Wells Fargo, the Bank of Japan will keep its quantitative easing program in place for the foreseeable future, leaving the yen on the defensive against major currencies.
“Data released this week indicate that the Japanese economy, where real GDP was up 1.3 percent on a year-over-year basis in Q1 2017, continues to grow at a modest pace. Japanese IP dropped 3.3 percent in May relative to the previous month, which, on the surface, looks awful. However, the plunge in IP in May was not sharp enough to reverse the 4.0 percent jump that was registered in April. Moreover, the year-over-year growth rate, is more reflective of the underlying trend in Japanese IP at present. A similar monthly pattern (i.e., strength in April followed by relative weakness in May) was also observed in Japanese retail spending. On a yearago basis, retail sales in Japan were up 2.0 percent in May.”
“The pace of economic growth in Japan at present is not strong enough to lift inflation, however. The overall rate of CPI inflation was just 0.4 percent in May, well short of the BoJ’s 2 percent target. Although some foreign central banks are starting to indicate that it may soon be appropriate to remove some monetary accommodation, the BoJ seems content to keep its quantitative easing program firmly in place for the foreseeable future. Consequently, we believe that the Japanese yen will remain on the defensive versus most major currencies.”