The Week In Hindsight, 24 January 2014

Like most other equity markets, the NIKKEI pulled back further from previous highs over this last week, driven largely by heightened concerns surrounding emerging market growth prospects and financial stability.

These concerns never stopped the BOJ governor, Haruhiko Kuroda, from expressing his confidence in Japan’s own recovery to an audience at the World Economic Forum summit in Davos, Switzerland.

During his brief speech he described the Japanese fiscal program as “on track” and reiterated that confidence is an essential ingredient of any economic recovery.

The governor’s speech comes in the same week that the BOJ opted to keep monetary policy settings on hold for the time being despite concerns in some pockets of the international community about the likely impact of the proposed sales tax hike (VAT) from 5% to 8% in April.

We continue to believe that, in time, the BOJ and Japanese government will prove successful in their attempts to defeat disinflation and turn the economy back onto a path sustainable economic growth.

This is while, in the interim, the government is likely to remain committed to doing all that it can by way of stimulus in order to promote growth and activity within the economy. The entire time that this proves to be the case, Japanese stock markets should continue to respond positively.