23 Jul 2013
Flash: Third arrow won’t shoot down the yen - HSBC
FXstreet.com (Barcelona) - Following the 'Abenomics' victory over the weekend, with the Prime Minister's coalition government enjoying a comfortable majority in the Japanese Upper house, the success is now perceived as a vindication of the ‘Abenomics’ policies of Prime Minister Abe and encouragement to press on with the ‘third arrow’ of these policies, HSBC FX Team notes.
The third arrow includes the introduction of sweeping structural economic reforms to further foster growth, which would come combined with aid fiscal consolidation. According to HSBC Strategists, despite the good intentions, this new political thrust will fail to produce fresh legs down in the yen, HSBC thinks. A view in stark contrast to Nomura's FX Team.
The ‘third arrow’ of Abenomics will be much more challenging to agree and implement than the first two, HSBC thinks: "It will have to combine fiscal consolidation (including a decision on whether or not to ratify the consumption tax rise) with structural reforms that will see strong resistance, not least from inside Mr. Abe’s own party. The risks of delay and failure are high, which would ultimately see a return of the weak domestic economic conditions that have generally seen the yen under upward pressure.
Even if the government achieves its goals, as HSBC notes, "this will make the Japanese economy more flexible and open, which will attract inward portfolio and direct investment", adding "It is far from clear that further yen weakness will result from this."
The third arrow includes the introduction of sweeping structural economic reforms to further foster growth, which would come combined with aid fiscal consolidation. According to HSBC Strategists, despite the good intentions, this new political thrust will fail to produce fresh legs down in the yen, HSBC thinks. A view in stark contrast to Nomura's FX Team.
The ‘third arrow’ of Abenomics will be much more challenging to agree and implement than the first two, HSBC thinks: "It will have to combine fiscal consolidation (including a decision on whether or not to ratify the consumption tax rise) with structural reforms that will see strong resistance, not least from inside Mr. Abe’s own party. The risks of delay and failure are high, which would ultimately see a return of the weak domestic economic conditions that have generally seen the yen under upward pressure.
Even if the government achieves its goals, as HSBC notes, "this will make the Japanese economy more flexible and open, which will attract inward portfolio and direct investment", adding "It is far from clear that further yen weakness will result from this."