UBS lowers Japan GDP growth forecast to 1%

Revised lower as 4Q12 data disappointed.

In its latest Asian Economic Monitor update, DBS said that it has revised its GDP numbers for 2013 a bit lower on the back of Japan’s 4th quarter release.

"We expect the economy to grow 1% this year versus consensus of 1.2%," it said.

In light of the new economic data, UBS also highlighted the possible impact of a weaker exchange rate.

"Let’s shift the debate away from deflation and think more about what a weaker exchange rate means for profits. After all that’s what matters for the equity market. The rest is just a means to that end. We are not entirely convinced that a weaker exchange rate means a new Japan overall. However, there is a significant inverse relationship between the real exchange rate and manufacturing profit margins; i.e., a weaker REER is positive for exporter profit margins," it said.

"That’s what theory would predict, too. Obviously the outlook for global demand matters too and the relationship is far from one to one as a result, but if you believe the real exchange rate is going to get a lot weaker over the next few years (mainly driven by changes in Fed policy as opposed to the BoJ) then that could be a nice tailwind at least for export profits even if the rest of the economy continues to languish under the weight of some pretty substantial structural headwinds," it added.

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