Japanese Economic Update – 25 August 2014

A quiet week for JPY econ data sees NIKKEI track global counterparts higher

The NIKKEI drifted higher last week, in line with its global counterparts, as a lack of economic data and receding concerns over various crises across the globe saw investors increasing allocations to risk. The benchmark index now sits within touching distance of its six month high, just days ahead of preliminary estimates of August inflation data.

Looking forward, the unemployment rate as well as both national and Tokyo CPI numbers are due on Thursday and will be likely to form the focal point of the week for investors in terms of home economic numbers.  

In addition to Japanese data, second estimate US GDP figures for Q2 are due for release on Wednesday. Official projections suggest a minor downward revision from 4.0% to 3.9%, however; a surprise to the upside cannot be completely ruled out given the low base which the economy was starting from in Q2, following the weather and gov. shut-down driven contraction in Q1.

Nevertheless, the week’s data will provide a further insight into the health of the US economy during Q2 and Q3 of this year, and is likely to form the focal point of the week for many investors. This is while inflation data in Japan is expected to shed further light on the issue of whether or not the BOJ will be forced to ease further toward the end of the year or once into 2015.

The takeaway for investors is that we hold a positive outlook for US growth, which implies a similarly positive outlook for global investor confidence.

In relation to Japan, we expect economic momentum to remain below acceptable levels over the months ahead. Despite the potentially negative connotations for the economy, this is ultimately positive for investors in the JPY listed shares as it will likely lead to an extension of the current monetary policy program; implying a weaker yen and higher equity markets.  

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