The following are CIBC's latest weekly outlook for the CAD, and JPY.
Don’t Hale the Loonie for the Better Data. Canadians had been waiting for the benefits of the weaker loonie to spur activity in those sectors and the most recent GDP report seemingly gave the people what they wanted. But, as Yogi Berra said, “you can observe a lot just by watching” and a more nuanced look at the data suggests that this isn’t wholly the product of the low flying loonie. That’s because most of the gains in both were due to somewhat idiosyncratic factors. The pick-up in exports was largely the result of a jump in miscellaneous goods and the increase in manufacturing came from an auto assembly plant that came back online during the month.
We’ll keep watching the data for signs of the currency’s effect, but the full benefits are likely only starting to be observed, suggesting a need for the loonie to stay weak for the long haul.
Abenomics 2.0 Will Add to Pressure on yen. Prime Minister Abe’s latest goal is to increase Japan’s nominal GDP by about 20% to ¥600 trillion. Nominal GDP targeting has clear advantages for an economy stuck at the zero-lower bound. The target works in large part via the signaling effect as it essentially conveys that rates are going to stay low until domestic incomes rise.
If indeed Japan sticks to this target, it also means that stimulative polices and pressure on the yen are likely here to stay for another decade. With Japan being the first developed nation to adopt an NGDP target, it may also be a sign of changing preferences in the monetary policymaking community. In Yogi’s words, “the future ain’t what it used to be”.