Japanese Economic Update – 20 October 2014

NIKKEI closes the week lower again, follows in the footsteps of international counterparts

The NIKKEI continued to track its international counterparts lower last week amidst a quiet spell for economic data.

One of the few releases to hit the news wires for the week was revised industrial production data for the month of August, which subsequently highlighted a deeper slowdown in the industrial sector than had been revealed in the previous data.

Looking ahead, the coming days offer little more than the previous by way of economic data although, other developed market releases and events within the domestic policy and political arena promise to offset the effects of this.

On the policy note, the Bank of Japan Osaka branch manager spoke out on Monday morning over the damaging effects of a persistently weak yen.

This was at the same time as Reuters released a survey highlighting that most senior managers in Japan believe the positive effects of a weaker yen are far outweighed by the bad, indicating potential opposition from corporate Japan to further loose policy by the BOJ.

Going further than this, some actually called for intervention by the BOJ to prevent the USD/JPY exchange rate from rising above the 110.00 level.

Following the pair’s break above 105.00 in late August it has risen rapidly to touch noses with the 110.00 and a new six year high, prompting concerns among the above referenced senior managers that cost inflation could soon spiral out of control and further eat into profit margins.

Regardless of the eventual outcome on the exchange rate, output from the economy remains weak and risks for inflation remain toward the downside. In addition to this, when taking into account the disinflationary environment across developed markets in general; it begins to appear increasingly unlikely that Japanese policy makers will meet their inflation target.  

For these reasons, we continue to anticipate further adjustments to the BOJ program during the months and quarters ahead. This we believe will continue to support JPY shares going into the close of the year, while the week ahead appears set to be dominated by events away from Japanese shores.





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