In its hardest contraction since June 2014, Japan’s economy is facing its second drop since the beginning of the year. Largest contributors to the drop are: the trade war between Washington and Beijing; Typhoon Trami that disrupted production and distribution channels; and a 6.7 earthquake that hit the Northern Island Hokkaido. Given an outlook of a 2.50% decline, Japan’s GDP is worrisome, as Japanese domestic demand dropped 2.20%. Meanwhile, Japan’s current account balance has declined in October, given at 1.3 trillion yen ($ 11.6 billion) and 28% lower than September. The trade deficit has been widened 321.7 billion yen ($ -2.8 billion), the most in 5 months.
In the context of a slowdown in global growth and an ongoing trade war, a Q4 rebound is questionable. Policymakers hope capital expenditures will help the economy rebound, but this has yet to be seen. USD/JPY is currently trading at 112.70 (+0.06% year-to-date), heading higher as safe haven demand builds, approaching 112.80 short-term.
