The Week In Hindsight, 13 July 2014
At the opening of another quiet week on the economic calendar, the BOJ released its monthly monetary policy statement. In it, the bank refrained from making adjustments to the current policy settings while revising downward 2014 growth projections, as a result of lower than expected exports over H1.
Despite revised growth expectations, policy makers remain confident in the ability of Japan to achieve its 2% inflation target during 2015; indicating a positive longer term outlook for the economy.
In addition to policy statements, the opening to the week also saw the Markit Global Business Outlook Survey released. While the survey highlighted cooling business confidence in both developed and emerging markets, it did rate Japan as an exception to the rule. The survey reported that confidence in the corporate world reached its highest level for 18 months during Q2.
A separate survey released on Monday, this time by Nikkei, also highlighted growing confidence surrounding worker prospects for pay increases. The survey showed expectations for an estimated 8% increase in the value of discretionary bonus payments at Japan’s largest companies this summer.
Although the larger majority of Japan’s workers are employed by SME’s, improving pay in the corporate sector would be likely to see SME’s placed under pressure to follow suit, which is positive for the recovery over the broader term.
All in all, the week’s developments are a plus for investors in JPY equities as a byproduct of accelerating confidence is often accelerated output, although admittedly this is more relevant for those with a medium-long term view.
Looking at the present, the NIKKEI opened higher on Monday following a week of profit taking which saw the index track its global counterparts lower.
With the economic data calendar sparsely populated in terms of Japanese data for the days ahead, US retail sales figures and Janet Yellen’s testimony to congress are likely to set the mood for global equity investors and traders this week.
It is interesting to note that despite last week’s downward leg, the NIKKEI index remains close to a five month high. This follows a four week period which saw investors increase their weighting toward JPY shares to the highest level in six months, according to Bank of America Merrill Lynch’s monthly fund survey.
In our view, this underlines the likelihood that the Japan investment story still has a way further to run. With the consumption tax increase now fading into the background, inflation on track and wage pressures beginning to stir; we believe that the recent turn in JPY equity sentiment could mark the beginning of the next leg along the road to recovery for both JPY equities as well as the economy.
NIKKEI 225 10 Minute Intervals
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