Japan’s third quarter market outlook

JAPAN’S consumer prices rose in April due to largely higher energy bills, underpinning a mixed picture for policy makers’ efforts to boost growth amid on andoff deflation.

The country’s prospects have been improving on the back of strong exports with investment linked to the Tokyo 2020 Olympics. The labor market is tight and business confidence is strong.

The Bank of Japan ( BOJ) raised its economic forecasts at its policy meeting in April and kept its policy steady. BOJ raised its real gross domestic product (GDP) forecast for the year 2017 to 2018 to 1.6 per cent from 1.5 per cent projected in January and lower the core consumer price index ( CPI) growth forecast to 1.4 per cent from 1.5 per cent in the same period.

The BOJ has set its target yield for the benchmark 10-year Japan government bond at around zero per cent, and it has been willing to intervene to keep the benchmark yield in line with its target where BOJ can theoretically buy fewer bonds.

BOJ Governor Haruhiko Karudo voiced confidence that the country’s inflation rate will accelerate towards his 2 per cent target as robust economic growth pushes up wages helps heighten inflation expectations.

He further conceded that inflations expectation were not well anchored in Japan, making it challenging to convince households and companies that a sustained economic recovery will eventually lead to higher inflation and wages.

The Nikkei 225 index slumped 0.61 per cent on Friday, May 26 ended down by 120 points at 19,680 leaving it with a 1.1 per cent gain for the week and hit above the 20,000 points level on the first day of June.

Although the strengthening in yen against the greenback battered exporters however, Nikkei 225 managed to climb above 20,000 points level. If yen depreciates in the near term, Nikkei 225 should climb to the 21,000 points level.