Japanese Economic Update – 29 September 2014

NIKKEI pushes northwards as investors bet on more stimulus from the BOJ

Japanese equities advanced further during the previous fortnight as both investors and traders continued to bet on the likelihood of further stimulus to come from the BOJ in the near future.  

This has largely been driven by falling inflation expectations as after adjustments are made for the effects of the consumption tax increase, both CPI and Core CPI have declined persistently throughout the summer period.

In addition to weaker inflation, household spending continued to decline during the same period, with the official figures highlighting a contraction of -4.7%. This was while August also saw a 1.5% contraction in industrial production, marking an extension to what has already been a consistent run of under performance in this area.

On a more positive note; August also saw another drop in the unemployment rate, which fell back to a multi-year low at 3.5%. In tandem with the reduction in unemployment, average cash earnings also increased at a pace of 1.4% on an annualised basis, which compares well with the 1.1% forecast and could have helped to support the simultaneous uptick in retail sales which also occurred during the month. 

Despite notable points of merit, the Japanese economy remains some way off from the edge of the woods at present.  Weak external demand has seen exports remain suppressed throughout recent months even with the continued weakening of the yen, while a deceleration in inflation has cast a tall shadow over the outlook for domestic demand.

As a result, calls for further action from the BOJ are not likely to recede any time soon. Looking forward, we continue to see these voices growing louder during the months ahead, particularly if inflation slows further and full year growth continues to appear as if it will undershoot policy maker forecasts.

Such voices should support Japanese equities as we move toward the closing stages of the year. Therefore, we remain optimistic in this area.  

NIKKEI 225 August – Present

NIKKEI29SEPT

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USD/JPY August – Present

DOLLARYEN29SEPT

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GBP/JPY August – Present

STERLINGYEN29SEPT

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