Japan’s 1Q17 market outlook
JAPAN’S industry is growing steadily as the weakened Japanese yen and a strong global economy offer new hope of a breakout from deflation issues in Japan.
There is also a growing concern about the ability of President Donald Trump implementing his pro- growth strategy which had strengthened the yen over the past two weeks, underscoring doubt in the outlook for inflation and growth in Japan.
Businesses sentiment among large Japanese manufacturers improved in March but remained cautious about the future amid uncertainties overseas as revealed by Bank of Japan’s Tankan survey.
The concern for manufacturers, especially export companies, is on the possibility of widespread changes in trade policies around the world.
Japanese companies have a strong presence in Mexico.
US’ President Trump stated that he would look into negotiating North American Free Trade Agreement which Mexico is part of.
Japan’s inflation rose consecutively for the first time since 2015 where core consumer prices increased 0.2 per cent in February while unemployment rate reached 2.8 per cent, the lowest in 22 years since 1994.
Many expected that higher in oil prices and the weaker yen would help push the core inflation to a near one per cent later this year.
However, Bank of Japan (BoJ) Governor; Haruhiko Kuroda has warned that those data was not sufficient to move towards the central bank’s goal of two per cent and they would need solid evidence of an underlying inflation before rising the longterm interest rate target.
The Nikkei 225 index slumped 1.4 per cent on Thursday, ending downwards by 264.21 points at 18,597.06 to the lowest for the year following a ‘down- day’ on Wall Street as investors worldwide grew anxious over the direction of the US policy and its effects on asset prices.
Traders are positioning themselves ahead of the summit meeting between President Donald Trump and China’s top leader, Xi Jinping.
Both leaders have different objectives for the meeting.
Therefore, the end result might be disappointing.
BoJ kept monetary policy unchanged during the last meeting in the wake of US Federal Reserve’s second interest rate hike in three months, underscoring the diverging policy paths of major global central banks.
On the technical front, we expect the Nikkei 225 to trade in bearish momentum given the uncertainties in the global economy and the direction of Trump is heading towards, with an immediate support at 18,100 and resistance at 18,700.
BoJ’s monetary policy meeting on April 26 and 27 is another key event that traders should look into to determine the impact of the meeting’s results on the Japanese market.