Japan: Geopolitical risk intensifies – ING

North Korea’s firing of more missiles, this time over Japan, could be the trigger for another round of global risk-off though, more optimistically, is a last bout of sabre rattling for domestic consumption before Pyongyang takes a more diplomatic line, explains Rob Carnell, Chief Economist at ING.

Key Quotes

“BoJ Governor Kuroda recently expressed some doubt about the sustainability of recent economic strength, so don’t expect any change in BoJ policy anytime soon.”

“We’ll have to wait and see. There was no immediate reaction from Japan but markets reacted with a surge in safe-haven flows (JPY, CHF and gold).”

“Japanese activity data today could be regarded as disappointing following recent GDP upside surprises, and maybe the start of some payback from 1Q and 2Q17 strength. But we aren’t so sure. The 0.2% YoY decline in overall household spending is only a little worse than our forecast (INGF: -0.1% YoY) which was based on a continuation of broader underlying growth trends. The consensus forecast simply looked too high to us. Moreover, the unemployment rate remaining at a record low of 2.8% in July was fully expected. It doesn’t move much anyway.”

“Whatever the underlying growth story turns out to be, BoJ Governor Kuroda recently expressed some doubt about the sustainability of recent economic strength, so don’t expect any change in BoJ policy anytime soon.”