The Week In Hindsight, 06 December 2013

The Shanghai Composite Index bucked the trend in global equity markets this week as the Chinese manufacturing sector was reported to have expanded at a faster pace than expected.

Buoyant China markets came as Japanese Prime Minister, Shinzo Abe, confirmed all of the elements in Japan’s $182 Billion dollar stimulus package slated for next year. The package includes a range of fiscal measures along with $60 Billion in monetary stimulus announced in October. It is estimated that the combined measures will add one percentage point to Japanese GDP and create 250,000 jobs.

Despite the support for the economy, the NIKKEI beat a moderate path of retreat from last week’s highs. This was partially due to concerns over the direction of US monetary policy however concerns over the viability of the Japanese government’s plans also made a contribution.

This is as the Prime Minister’s statement came close on the heels of a volley of surveys measuring wage growth within the economy. Annual earnings for the average Japanese worker were seen as up 0.1% year on year in October however regular pay for the same month declined by 0.4%.

Stagnant or falling wages pose a significant risk to the Japanese recovery as the government’s plans rely upon stimulating spending within the economy followed by sustainable growth. This will be difficult to achieve if wages are falling while inflation rises as this then translates into a further reduction in real incomes which will be likely to discourage spending thus hampering economic growth. The Bank of Japan is expected to deliver its next monetary policy statement on Friday the 20th December.

NIKKEI 225