Article by ForexTime

The yen was weakened after Japan’s second-quarter GDP showed the economy shrank by an annualized 1.6 percent, down sharply from the 4.5 percent expansion of the first quarter. The slower growth rate was mostly due to declining exports, which fell 16.5 percent. This drop in GDP causes concern, considering the yen was 2 percent lower against the U.S. dollar than in the last three months. Despite being a cheaper currency, it has not been able to help stimulate the Japanese economy.

The latest data does not bode well for the Bank of Japan, which has recently undertaken alot of monetary policy easing. Today’s data raise doubts whether more money-printing would be helpful any more if all it does is further weaken the exchange rate and not have any other impact on the economy. Inflation is close to zero, far short of the BoJ’s 2 percent goal. Wages fell in June, and household consumption swooned in the most recent quarter after recovering only partially from the slump caused by Japan’s sales tax hike in April 2014.

BoJ Governor Haruhiko Kuroda may find it hard to convince other policymakers on the monetary policy committee that increasing the central bank’s already-massive 80 trillion yen ($640 billion) annual bond-buying target would lift inflation expectations without making the government debt market completely dysfunctional.

The yen has lost 31 percent of its value against the U.S. dollar since Prime Minister Shinzo Abe started his “Abenomics” experiment in December 2012, and yet the economy remains fragile. Though the stock market is up 31 percent over the past year, companies aren’t investing in new factories in Japan.

Article by ForexTime

ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com