Japanese GDP Surprises to the Upside

Japan's economy expanded at an annualized rate of 3.5% in the final quarter of 2007, surpassing economists' expectations of 2.3%. Yen appreciation notwithstanding, export growth proved to be an important catalyst for growth. The result validated a report released by the Bank of Japan last week that argued the economy was supported in spite of US slowdown and rising input prices, suggesting demand from emerging markets (notably China) will continue to offer substantial stimulus.

Today's result will moderate calls for the BOJ to lower interest rates, which is for the better considering the bank lacks clear leadership at present. As we reported last week, Governor Toshihiko Fukui is set to step down on March 19th. The candidacy of his would-be replacement and current deputy Toshiro Muto has been blocked by the Democratic Party of Japan (DPJ) that controls the upper house of the Diet (Japan's parliament). Critics alleged that Muto's 37 years with the Ministry of Finance far outweigh his 5 years with the BOJ, questioning whether the central bank can truly retail its independence under his leadership.

DailyFX