Without additional details with regard to the US – China trade deal along with rumors of potential export quotas for the sale of chips to Chinese tech company Huawei, investors are willing to favor safe-haven currencies ahead of year-end as the best-case scenario is already priced in. Japanese yen continues to gain traction for the second consecutive trading day as tomorrow’s Bank of Japan monetary policy is expected to show that the BoJ should be in a holding pattern for now before deciding to withdraw stimulus at a later stage following Prime Minister Shinzo Abe’s government announcement of a larger-than-expected 15-month fiscal stimulus package.
The release of 4Q Tankan manufacturing sentiment indicator last week did not surprise much, declining to 0 (prior: 3), its lowest level since March 2013 and the fourth consecutive fall while exports continue to show weakness, dropping for the 12th straight month in November to -7.90% (prior: -9.20%), strengthening expectations of a technical recession in the October – December quarter, with GDP figure only due on 17 February 2020. The stimulus package announced earlier by PM Shinzo Abe and estimated at JPY 26 trillion ($239 billion), including a JPY 13.2 ($121 billion) fiscal stimulus package, the first since 2016 and largest seen since the 2008 financial crisis, should support the economy through investment in infrastructure and technology. Although the latter tend to support an increase in GDP growth in fiscal year 2020, as shown by the Japanese government’s forecast of 1.40% (prior: 1.20%), it appears that labor shortages in the country could well prove to be a major obstacle to construction programs, which could ultimately compromise the effectiveness of the fiscal package to support growth.
