Japan's GDP fell more than expected in the third quarter, what is the next step for the Bank of Japan?
Japan's Cabinet Office released revised data on third-quarter gross domestic product (GDP) data released on December 8 showed that domestic demand was weakOn a seasonally adjusted basis, real GDP fell 07%, or 29%, which is lower than the initial value of -21%, which is also lower than the market's -20%γThe revised GDP data is the first negative growth in the last four quarters.
Some analysts pointed out that the GDP data reflects the long-term rise in prices, which has put heavy pressure on the Japanese economy recovering from the epidemic. There are many worries about the impact of the slowdown on exports from overseas, and it is unclear whether the Japanese economy will be able to return to the growth track as soon as possible.
In addition, single-month data showed a weaker economy, with household spending falling 2% year-on-year in October5%, the eighth consecutive decline, and nominal wages increased by 15%, but still well below the current level of inflation.
Kota Suzuki, an economist at Daiwa**, said: "The weakness in personal consumption is likely to persist for the foreseeable future, as real disposable income is likely to continue to decline, which is seen as a factor in the downturn in consumption." β
The sluggish data complicates the BOJ's calculations, as it has been waiting for a positive cycle of wages and prices to form, and then exiting the negative interest rate policy that it has been in place for more than a decade and moving towards the normalization of monetary policy.
Speaking to the Diet on Thursday morning, Bank of Japan Governor Kazuo Ueda said that it will become more difficult to deal with monetary policy from the end of the year to next year, and that there are various options for adjusting policy rates if interest rates are raised. The comments fuelled speculation that a policy pivot was imminent. And just the day before, Bank of Japan Deputy Governor Ryozo Himino hinted that the Bank of Japan may soon end the world's last negative interest rate policy, a statement that was the clearest signal from the BOJ leadership so far.
These sentiments suggest that the authorities are considering ending negative interest rates, further reinforcing market expectations for interest rate hikes, with the probability of the Bank of Japan ending negative rates soaring from 2% to 45% this month.
On Thursday, Japanese bond yields rose by the most in a year, and the yen traded nearly 4% against the dollar**.
Nobuyasu Atago, chief economist at the Rakuten Economic Research Institute, said: "It is risky for the Bank of Japan to end its negative interest rate policy when the economy has deteriorated. β
"However, I think their main assumption is that the next step will be decided in January next year based on the new prices**," Atago added. β
Before the yen spiked on Thursday, a survey of economists was conducted on the basis of a number of economists who all expected the Bank of Japan to not change policy at its December 19 meeting. Two-thirds of economists believe that the Bank of Japan will lift negative interest rates early next year, with April considered the most likely point in time, but it is also possible to bring it forward to January.
After the release of GDP data on Friday, the yen went further**. Some analysts believe that the poor results have not stopped speculation that the Bank of Japan may act at its December meeting, rather than waiting for the fourth quarter GDP data for February and the annual wage data for March.