A Deutsche Bank analyst said improving Japanese fundamentals point to a modest
yen appreciation. Japan's Q2 real GDP rose 0.3% q/q, below expectations; nominal
GDP rose 1.2% q/q, implying aggregate inflation above forecasts. The analyst
said stronger nominal growth could increase pressure on the Bank of Japan to
tighten policy in September or October, which would support the yen. Fiscal
concerns appear overstated — Japan is among the G10 with one of the smallest
budget deficits — and higher nominal growth should boost tax revenue and improve
the fiscal balance.