What If The Yen Falls Another 20%

What If The Yen Falls Another 20%? (by Joyce Poon, Asia Research Director, GaveKal Capital) - Japan's woeful third quarter performance-the economy contracted at an annualized 1.6% rate, pushing the economy into a technical recession-has killed any remaining expectations that the government of Shinzo Abe will proceed with its original plan to raise the country's sales tax for a second time next year to 10%. In the absence of further fiscal consolidation, this will leave the prime minister's 'Abenomics' policy to revitalize Japan's economy looking more than ever like naked mercantilism, reliant on quantitative easing to weaken the yen and boost the country's export sector. Over the last two years this approach has pushed the yen some 30% lower on a trade-weighted basis, taking the currency from grossly over-valued to somewhere close to fair value today. However, recent events have made clear that Abe is not prepared to settle simply for fair value. Read more: (VIEW LINK)