Japan has cut its economic outlook for the first time in 20 months, putting the blame squarely on the strengthening yen and its effect on exports and industrial production reports the Mainichi Daily.
The economic rebound is on ‘pause’ and could even dip into recession.
“If the economy turns out as expected in our main scenario, we may end up describing the current situation as a soft patch,” said the official at the Cabinet Office, which compiled the report.
“But if it comes under further downward pressure, it could end up slipping into recession,” he said.
“Economic movements appear to be pausing recently,” the report said, while repeating that the economy was in a mild deflationary phase.
Which means you should expect the Bank of Japan to act even more like a ‘rabid dog’ when it comes to monetary policy. The threat of recession, caused by a strong yen, has Japan backed into a corner and they’ll fight tooth and nail to show currency markets that every effort will be made to devalue the yen.