The Week In Hindsight, 12 May 2014

Monetary Policy Meeting minutes released last week showed that GDP growth expectations were for expansion in the economy to have proceeded, during Q1, at the fastest pace since 2011. This was while the Japanese Economy Watchers sentiment survey indicated that consumer demand, although reduced, has been in line with expectations since the Consumption Tax increase which took place at the beginning of April.  

Despite the modestly positive tone of economic data, the NIKKEI struggled to make headway given a number of statements which were released from Japanese boardrooms during the week, detailing expectations within corporate Japan that the yen may strengthen further over the remainder of the year. This left concerns over export demand as the predominant driver of some index heavyweights, which led the benchmark to close only moderately higher than where it came to rest the previous Thursday (London time).

Overall, and in summary; announcements made over the week indicate that growth has persisted at a rate that was slightly above expectations. This is while CPI continues to trend toward the upside and the BOJ’s 2% target. Should this continue, then sentiment toward Japanese equities should improve over the medium term which would be expected to lead toward a more extended recovery in the NIKKEI.

On a similar note, should strength in the yen become a threat to economic growth then the BOJ may find it necessary to ease policy further under the pretence that the economic growth outlook is deteriorating, which would be positive for investors in Japanese equities over the near to medium term.