Forex Flash: JPY rallies on economic recovery and speculation – RBS (Barcelona) - The markets continue to have high expectations of ‘Abenomics’ – ever since the Abe administration unveiled an emergency package of JPY20trn including JPY10.2trn of actual fiscal spending, the markets are increasingly pricing in a positive impact of the measures and consensus has upgraded its economic forecast for the first half of 2013.

Based on data for economic indicators released last week, core machinery orders grew for the second consecutive month in November, indicating that the Japanese economy hit a bottom in Q4 last year cyclically and is set to improve from early 2013 onwards. Household consumption related data also points to the return of final demand in Japan to positive growth territory from Q4 2012.

Thus, according to Junko Nishioka, Chief economist at RBS, “the economy would have recovered to a positive trend cyclically even without the emergency package and the effects of yen depreciation, and consensus is likely to raise its economic forecasts for Q4 last year and Q1 this year above the potential growth rate.” (The ESP consensus survey for January estimates 0.55% QoQ annualized growth for Q4 2012).