Japan’s government raises economic growth estimates for FY2023/24 and FY2024/25
The Japanese Cabinet Office on Thursday revised its economic growth forecasts for this fiscal year from previous estimates, indicating that external demand is likely to more than offset sluggish domestic consumption.
Key quotes
“The real economic growth rate for fiscal 2023/24 is estimated at 1.6%, up from 1.3% seen half a year ago.”
“The fiscal year 2024/25, economic growth projection was bumped up to 1.3%, slightly higher than the previous estimate of 1.2%.”
“External demand is likely to more than offset weak domestic consumption.”
“Domestic demand is expected to rebound in the next fiscal year with the help of planned income tax cuts on top of the ongoing trend of wage hikes
Inflation is seen slowing down to 2.5% for the next fiscal year.”
Market reaction
The Japanese Yen attracts some buyers following the economic growth estimates. At the time of writing, the USD/JPY pair is trading around 143.05, down 0.48% on the day.
Japanese Yen FAQs
What key factors drive the Japanese Yen?
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
How do the decisions of the Bank of Japan impact the Japanese Yen?
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.
How does the differential between Japanese and US bond yields impact the Japanese Yen?
The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.
How does broader risk sentiment impact the Japanese Yen?
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
