Abenomics Faces Another Setback

The Japanese economy was dealt another blow overnight after gross domestic product figures showed output collapsing. Although the preliminary quarterly GDP number managed to beat estimates of a -0.50% contraction, printing at -0.40%, it is a far cry from the prior quarter’s 1.10% expansion. Moreover, the annualized figure shows the economy contracting at a -1.60% yearly pace, a vexing number for policymakers as they consider expanding easing measures and asset purchases to drive the Yen lower. In light of the move by China to devalue the Yuan, this could elicit comparable actions from the Bank of Japan. These latest results could be viewed as the beginning of the fifth recession to face the Japanese economy in just over 6 years, further highlighting the economic woes facing the beleaguered nation as policymakers seek to restructure the economy. The Yen has given up ground against the US dollar overnight, with USDJPY trending higher.

The uptick in the dollar following the softness experienced last week is seeing gold prices well below last week’s highs despite the slight trend higher experienced overnight. With the dollar gaining on major currencies, there is pressure on gold prices to the downside especially in light of upcoming consumer price data from the United States and United Kingdom. Although US numbers are expected to show a slight increase, adding to the case for a September liftoff, the recent rout in oil prices might contribute to a number that misses expectations. Gold net long speculative positioning in futures contracts recorded a modest gain according to last week’s data from the Commodity Futures Trading Commission, adding to expectations that prices could run further, especially if FOMC Meeting Minutes due later in the week hints that interest rates will remain lower for longer.