Japan: pace of growth to moderate - Wells Fargo

According to analysts from Wells Fargo, the yen will trade steady against the US dollar and they seen growth moderating in Japan in the year ahead. 

Key Quotes: 

“Real GDP in Japan rose 1.7 percent in 2017, the fastest growth rate since 2013. The Japanese economy has enjoyed eight consecutive quarters of expansion, a feat not achieved since 1986.”

“After being unusually weak in Q3, domestic demand recovered in the fourth quarter. Personal consumption was elevated amid strengthening retail sales. Similarly, business fixed investment regained strength to end the year after a slight slowdown in Q3. Government spending saw only modest improvements this past year, which is actually encouraging as it demonstrates less assistance from government stimulus.”

“Inflation remains subdued, as firming in the labor market and elevated corporate profits continue to lack translation into higher prices. As firms continue to absorb increased labor costs, price growth remains muted. Lack of inflation remains a key concern for the Bank of Japan (BoJ), which continues to keep its ultra-accommodative policy intact. Although the BoJ has dialed back its pace of bond purchases in recent months, it will likely keep its deposit rate in negative territory for the foreseeable future.”

“We expect a steady firming in the yen vis-à-vis the U.S. dollar over time in the context of generalized greenback weakness. The Japanese economy is expected to continue to expand, although we expect that the pace of growth will moderate in the year ahead. We forecast real GDP growth of 1.5 percent this year.”