Japanese Economic Update – 11 August 2014

NIKKEI sheds 4.8% over the course of the week; tracks global equities lower

The NIKKEI fell by 4.8% last week as risk aversion among investors spiked, sending many of them piling into safe haven assets such as treasuries and gold.

Underlying the poor performance from Japanese shares was another monetary policy meeting, which saw the BOJ reiterate its previous mantra toward the economy before announcing no change to the current stimulus program.

In detail, policy makers acknowledged that both public sector investment and business investment had each improved so far throughout 2014, while consumer spending has “remained resilient” as a result of wage pressures beginning to stir.

On the downside, exports have slumped off the back of a recovery in Japanese Yen based currency pairs.  In addition to a stabilising yen, inflation has also reached a standstill although the BOJ believes that upward momentum will resume during the months ahead.  

In summary, policy makers remain optimistic in their outlook for the economy over the medium term, as do we. However, expectations surrounding CPI seem slightly overoptimistic. Currently at 1.25% (ex cons tax increase), the BOJ has little time to close the 0.75% gap remaining ahead of its self imposed deadline of spring 2015 b (Feb – May).

In light of a stronger currency, lower exports, declining real incomes and consensus expectations that the Japanese economy contracted during the second quarter; we are less optimistic than the BOJ that its 2% inflation target will be reached by Spring next year.

Consequently, we maintain our bias that it is likely the BOJ will unveil further stimulus measures before the year is out.

NIKKEI 225 Hourly Intervals

NIKKEI

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