The Week In Hindsight, 02 June 2014

Last week’s economic data continued to point toward a modest brightening of the horizon for Japan. Despite a further than expected fall in retail sales and consumer spending, other economic indicators continued to suggest that the economy has handled the sales tax increase better than some had initially feared.

This was as CSPI and core CPI data for April, the month of the tax increase, showed a robust increase in corporate services prices and core consumer prices; indicating that the tax increase continues to be passed onto customers as opposed to being shouldered by the balance sheets of corporate Japan.

This is a positive for the economy in the longer term as it prevents additional pressure from being placed upon margins, which is necessary if wages are to increase in line with, or above, inflation over the medium to longer term.

The increase in consumer and business prices came alongside a stable unemployment rate for the following month of May, indicating that large numbers of redundancies have so far been avoided. This was while capital spending figures among businesses for the previous quarter reached their highest level since Q4 2011.

On another positive note for investors in Japan, the IMF lent its support to BOJ governor Kuroda during late stages of last week when it released an internal report containing details of its agreement with the bank’s current strategy to keep monetary policy on hold unless the outlook for the economy should meaningfully deteriorate.

“With actual and expected inflation steadily progressing toward the 2% target, increasing asset purchases now to raise the probability of meeting the target sooner is not needed and policy space should be preserved to address downside risks,” – IMF, May 2014

The NIKKEI closed the week higher in Win – Win trading before getting off to a positive start on Monday morning (Sunday 22:00 GMT). This was as any improvement in economic prospects is undoubtedly positive for shares in Japan, while any meaningful deterioration of economic health will almost certainly be met with yet more volleys of stimulus from the BOJ. As a result, the NIKKEI remains close to a two month high with a bias toward further upside.

NIKKEI 225 Over 10 Days

NIKKEI LAST WEEK VIEW

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NIKKEI 225 Daily Chart

NIKKEI LONG TERM VIEW