The Bank of Japan says that inflation is accelerating and does not need expansive monetary policy, but the economy is expected to weaken further. GDP growth was 0% for 2018, including a contraction of -2.60% in Q3. Momentum is fading: the manufacturing PMI fell for the first time in 2.5 years. The decline comes from weaker sales to China amid continued trade frictions and weaker domestic manufacturing demand. In the event of an agreement between the US and China, the economy might be facing difficulties, as China’s pledge to buy semiconductors from the US could hurt the third largest electronic product industry in the world. No changes in Japan’s labour market, with January’s jobless rate at 2.50% (prior: 2.40%) and still its lowest range in 26 years. With the prospect of a US-China trade deal as early as mid-March, safe haven JPY is less in demand. We expect a rebound of USD/JPY from late February’s low (110.59) to sustain in the coming weeks.
Currently trading at 111.98, USD/JPY is heading along 112.20 short-term
