The Japanese economy contracted more than expected in Q3. After a 1.1% growth spurt in Q2, economic activity contracted by 0.5% q/q in Q3 (-0.1% expected). The decline was mainly due to weak domestic demand (-0.4%), especially business investment. Private consumption stagnated after a sharp decline in Q2, underscoring the sluggishness of underlying consumer demand.
Support came from government consumption (0.3% q/q). Net exports contracted by -0.1 ppt as a modest increase in exports (0.5%) was offset by a 1.0% rise in imports. The BoJ may see the poor performance of private consumption as a sign that a sustained, demand-driven rise in inflation remains uncertain. As such, the BoJ probably won‘t be in a hurry to exit its stimulative policy.
Nevertheless, the Japanese 10-Year Yield is hovering around 0.80% after a sharp drop at the open (mirroring the global market). USD/JPY is trading around the 150.65 level this morning, down from 151.5+ yesterday, but that was due to USD weakness. The yen remains weak, with the EUR/JPY (163.9) hitting multi-year highs.
Chinese retail sales rebounded more than expected in October, coming in at 7.6% y/y vs. 5.5% y/y in September and 7.0% y/y expected. YTD retail sales are now 6.9% higher than the same period last year. October industrial production data also showed a slight beat (4.6% y/y vs. 4.5% expected).
At the same time, real estate investment (YTD -9.3%) remains a huge negative for the economy as it is a major drag on fixed investment performance. The PBOC this morning offered much more cash (CNH 1450 bln) than expected (and what matured) via its 1-year Medium Term Lending Facility. The cash injection suggests that the bank still sees the need for continued policy stimulus. The yuan strengthened to USD/CNY 7.24 this morning, but this is mainly USD weakness.
