Japan enters in a new trade deal with EU amid positive economic fundamentals
|Opening the door for further trade relationships, the EU – Japan trade deal signed on Tuesday is providing a great message against protectionism. Taking into effect in 2019 and with the purpose of eliminating 99% of total tariffs between both blocs, a sum estimated along EUR 1 billion, the EU just signed its largest trade deal, expected to increase EU exports into Japan by over one third (currently estimated at EUR 86 billion). Japan is the second biggest partner in Asia after China and sixth trading partner worldwide.
Japanese nominal June inflation y/y data published at +0.70%, in line with prior month along with a slight increase in core gauge (ex fresh food) at +0.80% (prior: 0.70%) due to higher oil prices suggest that inflation target of 2% remains far, though recent bounce in June trade balance of JPY 721.4 billion (USD 6.5 billion), confirms heathy growth fundamentals. Common inflation drivers such as wage growth, unemployment rate at historical low and weaker JPY confirm the tendency of an acceleration in inflation for the coming periods, along 1% in 3Q. Accordingly, we expect the BoJ to maintain its dovish stance during 31. July 2018 monetary policy meeting.
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Trading at 112.46, the USD/JPY is currently trading neutral. The tendency should however favor a slight increase of the pair along 112.60.
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