JPY: Something is brewing in Japan – Danske Bank

Research Team at Danske Bank, expects the Bank of Japan (BoJ) to cut rates at its July meeting and the Japanese government to announce a fiscal stimulus package.

Key Quotes

“The initial Q1 GDP estimate surprised significantly on the upside showing that Japan’s economic activity expanded 0.4% q/q in Q1 from a down revised decline of 0.4% in Q4 15. Despite the positive growth surprise in Q1, many factors indicate that the economy is slowing: business surveys (PMI and Tankan) indicate further deterioration in the manufacturing sector in coming quarters and there is a risk the Kumamoto earthquake (in mid-April) might prolong the GDP slump for a couple of quarters. Indeed, manufacturing PMI for April showed the steepest decline since 2014, reflecting the downside risks to the economy from the earthquake.

We expect the BoJ to cut its policy rate by 20bp to -0.3% in July and to announce additional qualitative measures including a scale-up of ETF purchases and a maturity extension of its government purchases.”