Yujiro Goto, Research Analyst at Nomura, notes that the Japanese GDP fell 1.4% (q-o-q, saar) in Q4 2015, weaker than their expectations (-0.9%). Key Quotes “This is the second set of negative growth in three quarters. Our economists judge the weakness in household consumption is likely owing to sampling bias, but economic momentum in Q4 was likely weak even after considering the bias. Real exports declined by 0.9% q-o-q, which is disappointing. Our economists downgraded their FY2015-17 GDP growth forecast, expecting FY2015 growth of +0.7% (previous: +0.9%) and FY2016 growth of +1.0% (previous: +1.4%). The BOJ estimated FY2015 growth of +1.1% and FY2016 growth of +1.5% in January. Because of the decline in oil prices and JPY appreciation, the BOJ is likely to need to downgrade its inflation forecast in April, while the weaker-than-expected GDP growth number also suggests a strong possibility of a downgrade of the economic forecast. As the financial market remains volatile and economic momentum weakens, the likelihood of further policy action by the Japanese authorities remains high, in our view. Today Prime Minister Abe said the Finance Minister will continue to watch the FX market and he wants the Finance Minister to take appropriate action when necessary (Bloomberg). He said rapid FX movements are undesirable. PM Abe also said USD is depreciating in the FX market. On Friday BOJ Deputy Governor Nakaso said the BOJ does not share the view that asset purchases are near their limit, while the Bank could take more quantitative and qualitative steps if needed (Bloomberg). He said the Bank is carefully monitoring wage negotiations. Mr Nakaso said JPY has appreciated rather rapidly and the Bank is watching markets, while being in touch with its international counterparts. He said it is very important to have a stable currency, while rates could technically be made more negative. We do not expect the Japanese authorities to intervene in the FX market at current levels, but see a strong possibility of a BOJ easing at the next meeting in March. Expectations of a more accommodative Japanese authority policy stance will limit downside risk of USD/JPY.” For more information, read our latest forex news.