USD/JPY Monthly Fundamental Forecast December 2014

Outlook and Recommendation

The USD/JPY broke records at the end of November after the US dollar soared on Black Friday. The USDJPY moved into December at 118.60. The past month has been dismal in Japan. The economy shrank by 0.4% quarter on quarter in the third quarter, extending a slump generated by a rise in the consumption tax. The Prime Minister, Shinzo Abe, is set to delay a planned second rise in the tax from late 2015. He is also likely to call a snap election for mid-December, in a bid to receive a fresh mandate from voters. This will be a distraction in the short term but may give some much-needed impetus to his structural reform programme, the third arrow of Abenomics. We have made sizeable cuts to our estimate for growth in 2014 and to our forecast for 2015, which is now below 1%.

The leader of the ruling Liberal Democratic Party, Shinzo Abe, announced on November 18th that he would dissolve parliament, paving the way for a snap election on December 14th. Despite a raft of dire economic data, Mr Abe is determined to seek a new mandate to push ahead with his economic and political agenda. An unpopular planned rise in the consumption tax rate, due in late 2015, has been postponed for 18 months. The OECD has cut GDP growth forecast for 2015 to 0.9%, from 1.6% previously.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

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