A positive start to the year for Japanese equity markets; yen rebounds as markets begin to price in a BOJ that remains on hold throughout the year

Japanese Economic Update – 08 February 2015

While lower oil prices may threaten the BOJ’s inflation target in 2015 and could still force policy makers to push out their projections for when the bank expects to see the 2% threshold met, we continue to see this particular disinflationary pressure as a net positive for Japan.

This is as lower oil prices will deliver a boost to the bottom line at both Japanese corporations as well as in the pockets of consumers, while the deferred tax hike and targeted tax cuts for the corporate sector should also help to coax the nation out of recession.

However, if price action in the currency markets is anything to go by, markets appear to factoring out the possibility of a fresh round of easing from the BOJ over the near term. This could hold negative connotations for equity markets if growth were to disappoint and oil prices were to continue their nascent rebound.

Therefore, after a modestly positive start to the year for the NIKKEI, we will watch closely over the coming months for any sign of under-performance in the economy as well as the potential for further action from the BOJ.

NIKKEI 225 / 10 Minute Intervals

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