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China and Japan dominate the Asian markets during the week
Japan’s retail trade data recorded an increase that missed expectations which emphasizes the current crisis the world’s third largest economy is experiencing, in addition to the risks that may expose it to further deflation that Abe’s government is fiercely fighting during this phase.
In this context, retail trade movement is slow which may stimulate the idea of declining levels of domestic spending, which is one of the important factors for Japan`s economy whereas the moderation of domestic spending may facilitate the task of achieving the inflation target.
The inflation target is now set at 2% according to the joint efforts between the government and the BoJ. This is in light of the dilemma faced by the government after the decision of BoJ of not adding new stimulus for now, settling for continuing the current policy until they reach the target and only set new purchases to start as of January 2014. The BoJ’s decision added to pressures on the government to revive the economy in the coming period.
On the other hand, given the other economic rates we find that it is moving at a very slow pace, whereas we see the industrial production registering a rise in December with less than expected declined on the year. Despite that, Japanese firms benefited somehow recently after the yen fell to appropriate levels.
Moving to China, it has been experiencing economic recovery recently reporting positive economic rates at various levels, including industrial production and retail sales for example, as well as Manufacturing PMI that came with positive reading. All of the above best expresses the recovery of the world’s second largest economy.
The Manufacturing PMI greatly expresses China`s move toward recovery and the recovery starting to be felt in exports. The positive start for the year may support China`s economy in achieving growth goal this year above 8% barrier; according to the objectives of policy makers in China and their desire to achieve expressive growth rates that is highly efficient, and work to create balance between growth and inflation which has risen recently as a result of the rise in exports.
The Asian focus nonetheless was not only on the data from Japan and China, where they spotlight was reserved for the United States. The market found support from the Fed’s decision to preserve the QE program of $85 billion monthly purchases of securities, yet the unexpected GDP contraction in the fourth quarter and disappointing jobs report add to the lingering uncertainty over the recovery’s outlook, and surely keep the pressure on the dollar for now!
Economic conditions in the United States are key for Asian markets especially with focus on the global economic sentiment and key export markets for China and Japan, the longer the recovery in the U.S. stalls the slower it is for growth to return to its strong momentum in Asia!