Japan’s capital Tokyo will be the host city for the next Olympic Games in 2020, the handover from Rio took place this week as the Japanese Prime Minister Abe appeared as Super Mario in the closing ceremony. All eyes now turn to Japan and anyone who follows the world economy will know they are in a difficult position. The Bank of Japan has exhausted both their monetary and fiscal options as they find themselves with negative interest rates coupled with a $733bn government bond buying program. The bank is also forecasting that inflation levels will rise above the mandated 2% by 2018 however after two months of negative growth this might even seem ambitious.

Do the Olympics hold the key or the curse?

Japan has so far identified $7.3bn to spend on a new Olympic stadium and infrastructure, with billions expected to be also spent on existing transport networks. The central bank believes the Olympics alone could add 0.3% annually to the GDP in the years running up to the event. Prime Minister Abe wants to reach 40 million tourists a year by 2020 which is double the current levels.

There is no doubt that in the run-up to an Olympic games that investing in domestic infrastructure will supply jobs and move wealth around the nation. This could supply the catalyst that the Bank of Japan needs to reach the targeted inflation levels as they appear out of options. However it has been clear in recent history that an Olympics can provide short term boosts and prove to be a large waste of taxpayers’ money.

I believe that the Japanese Yen in the medium term could continue with the strength gained from Brexit against Sterling. Large internal investments and a long term of international interest could keep the GBP/JPY rate firmly in the 130’s.

There could be further movements today for GBPJPY off the back of GDP figures this morning. Get in touch with our brokers as soon as possible if you need to buy the Japanese Yen on 01494 725 353.

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