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Japanese Economic Update – 24 February 2015

Japan escapes recession despite a surprise to the downside from Q4 GDP figs; outlook for econ remains bright

In Japan the outlook for the economy in 2015 remains relatively bright and with both the European and Chinese central banks committed to a path of easing policy, global equities have continued to shrug off the prospect of 2015 interest rate hikes from the Federal Reserve and the Bank of England.

This led the NIKKEI 225 to breach the 18,000 level early in February, for the first time since 2007, which brings total gains for the index YTD (year to date) to 6.23%.

Supporting the more bullish stance toward equities and the economy has been news, in early February, that Japan escaped recession during the final quarter of last year. This was as GDP growth for Q4 came in at 0.6% which, despite being slightly lower than expected, places the economy in a good starting position for the year ahead.

Despite this, opinions remain mixed over the prospect for further easing this year as on the one hand, lower oil prices have called into question the viability of the BOJ’s inflation target.

This is while on the other hand, the same lower oil prices, a weaker yen and the absence of further tax increases all leave the outlook for the Japanese economy in 2015 looking relatively positive; which should push the bar for further easing from the BOJ somewhat higher.

On balance, we expect that growth in Japan this year will be among the strongest in the developed world. This is while we also expect that Japanese equities will draw more support in 2015 from a brightening economic environment than they will from any form of BOJ intervention.

These expectations are supported by the likelihood of a stronger US economy, further monetary easing in China as well as a brighter outlook for the likes of the UK and some segments of Europe.

NIKKEI 225 / Monthly Intervals

NIKKEIMONTHLY

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