Japanese Economic Update – 09 December 2014

Japanese economic contraction deeper than anticipated; data revised to the downside

After a positive finish to last week, Japanese equity markets came under pressure at the open on Monday as Final GDP figures were released for the previous quarter.

Here, the recent data highlighted a deeper than expected contraction in the economy during the period, with actual GDP coming in at -0.5% QonQ and -1.9% on an annualised basis.  

The revised data darkens the immediate economic outlook for a nation that is already battling a recession, induced by higher taxes, muted export demand, weaker domestic consumption and dwindling capital spending among corporates. It also increases the pressure upon Shinzo Abe, the Japanese Prime Minister, ahead of the first round of Parliamentary elections on 17 December.

Should public support for the Prime Minister’s Abenomics plan begin to fray then the Liberal democratic Party’s parliamentary majority could emerge somewhat lower in this latest round of elections.

In addition to the above, the Prime Minister also faces external pressures in that the earlier decision to postpone a second round of tax increases also prompted action from one of the leading ratings agencies.

This was as in the wake of the decision, Moody’s expressed its concern over the government’s commitment to reducing the developed world’s largest sovereign debt pile by slashing the nation’s credit rating on 01 December.

All in all, the previous week’s events look set to ensure that monetary easing and fiscal stimulus remain key drivers of Japanese equity markets. While volatility risk may increase ahead of the elections this month, it is likely that expectations of an extended period of stimulus from the BOJ, fiscal initiatives from the government and GPIF inflows will keep equity markets supported.

NIKKEI 225 // 10 Minute Intervals

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