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Forex pairs in this Article » USD/JPY
FXStreet (London) - Despite Prime Minister Shinzo Abe’s aggressive policies, deflationary pressures continue to dog Japan. Japanese GDP recorded a third miss on the trot, with just 1 percent annualised growth compared with expectations of a 2.8 percent rise. Quarter-on-quarter, GDP grew by 0.7 percent, the slowest growth since Abe took over as Japanese prime minister in December 2012.

No spending jump ahead of sales tax hike

The biggest drag on growth came from net trade which held down real GDP growth by 0.5 percent as imports leapt by 3.5 percent compared to export growth of 0.4 percent. And there was very little in the way of good news in any of the composite numbers. Business and consumer spending both remain depressed. Expectations had been for a big jump in spending to beat the sales tax implementation in April, however personal consumption accelerated less than expected in the fourth quarter, increasing by 0.5 percent compared to 0.2 percent in the third quarter.

BoJ easing bets

The continued below-normal Japanese growth increased bets that the Bank of Japan would move to step up its easing policies.

The BoJ currently purchases around JPY7 trillion in domestic bonds each month as it targets deflationary pressure.

BoJ Governor Haruhiko Kuroda has stated that the central bank is not targeting yen weakness. However, the central bank’s policies aimed at a 2 percent inflation target helped to weaken the yen by 18 percent against the dollar in 2013.

Although the BoJ may hold off on further hikes in the short term, the April sales tax hike from 5 percent to 8 percent may trigger a further bout of Abenomics, with an attempt to import inflation through weak yen policies.

USD/JPY is currently trading at JPY101.9350, up 0.22 percent with reaction muted thanks to US markets being closed for a national holiday.
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