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Reactions – Japan back in recession

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TOKYO Japan’s economy slid back into recession in July-September as uncertainty over the overseas outlook hurt business investment, putting policymakers under growing pressure to deploy new stimulus measures to support a fragile recovery.

COMMENTARY:

JUNICHI MAKINO, CHIEF ECONOMIST, SMBC NIKKO SECURITIES

“Private consumption and exports rebounded, while housing investment marked the third straight quarter of increase … While GDP marked the second straight quarter of contraction, it was mainly due to declines in inventory and increases in imports driven by growing final demand. As such, we don’t need to be too pessimistic.

“Japan’s economy will gradually pick up as private consumption and exports continue to improve moderately. Capital expenditure will also turn up.”

AKIRA AMARI, JAPAN ECONOMICS MINISTER, STATEMENT AFTER GDP

“While there are some weaknesses, Japan’s economy continues to recover moderately as a trend with corporate revenues at record high levels, and job and income conditions improving.

“While there are risks such as overseas developments, we expect the economy to head toward a moderate recovery thanks to the effect of various (stimulus) steps taken so far …

“The government will continue to watch economic developments carefully and guide economic and fiscal policy flexibly.”

MARCEL THIELIANT, JAPAN ECONOMIST, CAPITAL ECONOMICS

“The second straight fall in GDP underlines the downside risks to the Bank of Japan’s growth forecasts. With rising slack dampening price pressures, we remain convinced that more monetary stimulus will eventually be needed.

“Admittedly, policymakers have shown considerable reluctance to respond to weaker growth with additional stimulus as underlying inflation has accelerated. Indeed, we see little chances that the Bank will respond to today’s data by stepping up the pace of easing at its meeting later this week.

“But the key point is that the output gap widened again last quarter. The upshot is that the (BOJ’s) preferred inflation measure, which excludes prices of fresh food and energy, should start to moderate soon.

“We therefore remain convinced that more stimulus will eventually be needed, and now believe that the January meeting is the most likely venue for its announcement.”

SHUJI TONOUCHI, SENIOR FIXED INCOME STRATEGIST, MITSUBISHI UFJ MORGAN STANLEY SECURITIES

“The biggest drag on the economy was the decline in inventories, which implies that industrial output could pick up in the second half of the fiscal year. However, I am not optimistic because domestic demand is not that strong.

“China’s economic slowdown did not have a big impact on Japan’s Q3 GDP, but we could see a negative impact in the following quarters. The government does not have to respond right away, but economic stimulus could become more likely if things do not get better.”

TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE

“A big drop in inventories was the biggest factor behind the third-quarter contraction. Weak capital spending was a concern, but excluding these factors, the GDP figures were not so bad.

“Private demand is firm on the whole, therefore it may be misleading to describe the economy being in a recession. While inventory adjustment is making progress, final demand is picking up so the economy is looking up, albeit slowly.

“Given the economy is not in such bad shape as the headline GDP number showed, authorities may not consider large-scale stimulus for now. The BOJ is likely to stand pat for the time being, and the government will likely limit fiscal spending to the minimum necessary to respond to supply-side reform in the long run rather than near-term steps to stimulate demand.”

(Reporting by Leika Kihara, Tetsushi Kajimoto, Stanley White; Editing by Chang-Ran Kim)


Source: R-Business

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Paris attacks seen causing short-term global markets drop

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SYDNEY/TOKYO/PARIS/NEW YORK Stocks in major markets are set for a short-term sell-off on Monday after suspected Islamist militants launched coordinated attacks across Paris that killed more than 130 people, but few strategists expect a prolonged economic impact or change in prevailing market directions.

If anything, any initial damage to economic confidence, tourism and trade within Europe will likely reinforce the European Central Bank’s resolve to ease monetary policy further next month, they reckon. That will keep pressure on the euro exchange rate and support other European asset markets.

French financial markets will be open as usual on Monday, stock and derivatives exchange Euronext said on Saturday.

With many Parisian restaurants and shops shut on Saturday and Sunday, some local analysts expected any French equity reaction to be more visible than after January’s attacks against the Charlie Hebdo satirical magazine and a Kosher supermarket.

“Stocks that are angled towards consumer goods or tourism, notably the luxury industry with the Christmas season, could be affected,” said IG France analyst Alexandre Baradez.

“The January (attacks) were different, they were more targeted. Here they were aiming at an entire population,” he added. “There may also be a purely psychological effect that pushes investors to stay on the sidelines until more clarity emerges.”

Equity futures moved lower at the open on Sunday night in New York time, adding to losses posted as the attacks unfolded after markets closed on Friday. They soon pared some of those Sunday losses.

The Nikkei stock index fell 0.8 percent after having fallen as much as 1.8 percent earlier in the Monday session.

Mohamed El-Erian, chief economic adviser at Allianz, said: “With the horrible tragedy leading to some short-term restraint to French GDP, equity markets are likely to open lower with both government yields and the euro falling.”

Concern about similar attacks beyond France and tensions surrounding a stepped-up Western military response to the actions of Islamic State point to some ripple effect around world markets.

“These Paris terrorist attacks and the larger scale of this attack could have a meaningful negative impact on the travel and tourism sector,” said Robert T. Lutts, chief investment officer at Cabot Wealth Management in Salem, Massachusetts.

France has the largest number of tourists in the world and the sector accounts for almost 7.5 percent of GDP.

If increased national security causes trade friction, longer-term commercial effects also “bode ill for the euro,” said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.

“France closed the borders. For how long and what degree will determine the effects,” he said. “The question is will other countries follow this policy, maybe as a political cover to impede immigration.”

Outside France, few expect a jolt as significant as the hiatus after 2001’s attacks that destroyed the World Trade Centre in New York City.

In foreign exchange markets trading in Asia, the euro was slightly lower against the dollar and yen. Markets in the Middle East, which trade on Sunday, were hit hard, although part of that decline was due to recent falls in oil prices.

Analysts trying to put the event in some historical context say prior events like this in Europe over the past 15 years tended not to have any durable market or economic effects.

“As horrific as these events are – and this is truly awful – economic activity does tend to be pretty resilient,” said Howard Archer, chief UK and European economist at IHS Global Insight. He noted that the UK, Spain and France have all seen their economies “little damaged by terrorist atrocities in the past.”

SAFETY AND POSITIONING

One sector that could see a boost: defense. The sector is already doing better than U.S. equities as a whole, and “the prospect of more military action in Syria may help this group in the week ahead,” said Nicholas Colas, chief market strategist at the ConvergEx Group in New York.

“While the attack was in Europe, stocks all around the world will see pressure on Monday,” he said. “The typical “risk off” trade is out of global stocks, and into global sovereign debt and the U.S. dollar.”

Traditional safety plays into assets such as U.S. Treasury bonds would also go against the prevailing market trend of discounting an interest rate rise from the Federal Reserve next month. With few expecting the fallout from the attack to be big enough to affect Fed decision making, any Monday move will likely be short lived.

The benchmark U.S. Treasury futures contract rose on Sunday to hit its highest since Nov. 6.

U.S. 10-year Treasuries notes yielded 2.273 percent at Friday’s close. The euro was 0.5 percent lower against the greenback at $1.0718.

One reason for a possible volatile move into Treasuries is because the Fed rate hike anticipation has prompted heavy short positions in the 10-year Treasury. That could exacerbate any move into safe-have government debt.

Analysts at Citi say just the initial shock of the attacks may challenge extremely leveraged plays – such as heavy short positions in the euro or oil futures. But there was little reason to view that unwind as anything other than temporary.

“The market is heavily short euro and concerns are high any risk will trigger a short squeeze,” Citi analysts told clients. “We don’t think it will – and would sell into one if it appears. The attacks do not undermine the initial reasons for being short euro – or reduce the possibility of (ECB) action.”

While news of the attacks hit after markets closed on Friday, S&P 500 Index futures were still trading and shed about 1 percent in light volume.

“If this had happened during market trading hours there could have been a panic but markets had a weekend to digest all the information,” said Eiji Kinouchi, chief technical analyst at Daiwa Securities in Tokyo.

(Additional reporting by Tariro Mzezawa, Rodrigo Campos and Jennifer Ablan in New York; Nigel Stephenson in London; Writing by Mike Dolan and Lincoln Feast; Editing by Raissa Kasolowsky, Christian Plumb and Peter Cooney)


Source: R-Business

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Japan relapses into recession in July-Sept, blow to Abenomics

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TOKYO Japan’s economy slid back into recession in July-September as uncertainty over the overseas outlook hurt business investment, keeping policymakers under pressure to deploy new stimulus measures to support a fragile recovery.

A rebound in private consumption and exports offered some hope the world’s third-largest economy is emerging from the doldrums, despite slowing Chinese demand and the pain households are feeling from rising imported food prices.

Still, many analysts expect the economy to grow only moderately in the current quarter as companies remain hesitant to use their record profits for wage hikes, underscoring the challenges premier Shinzo Abe faces in pulling Japan sustainably out of stagnation with his “Abenomics” stimulus policies.

“A big drop in inventory was the largest factor behind a third-quarter contraction. Weak capital spending was a concern, but excluding these factors, the GDP figures were not so bad,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The world’s third-largest economy shrank an annualised 0.8 percent in July-September, more than a median market forecast for a 0.2 percent contraction, government data showed on Monday.

That followed a revised 0.7 percent contraction in April-June, which was the first decline in three quarters.

Japan thus slipped back into technical recession, which is defined as two consecutive quarters of contraction, after suffering one last year due to the hit on consumer spending from a sales tax hike in April 2014.

The data may affect debate among policymakers on how much fiscal spending should be earmarked in a supplementary budget that is expected to be compiled this fiscal year.

The government maintained a cautiously upbeat view, saying that despite some weaknesses, the economy continues to recover moderately on improvements in job and income conditions.

“While there are risks such as overseas developments, we expect the economy to head toward a moderate recovery thanks to the effect of various (stimulus) steps taken so far,” Economics Minister Akira Amari said in a statement after the data was released.

Capital expenditure fell 1.3 percent, more than a median market forecast of a 0.4 percent decrease to mark a second straight quarter of declines, on sluggish investment by automakers and machinery manufacturers.

But private consumption, which accounts for about 60 percent of gross domestic product (GDP), rose 0.5 percent from the previous quarter, roughly in line with a median market forecast.

While domestic demand shaved 0.3 percentage point off GDP, external demand added 0.1 point to growth, the data showed.

The weak data would be of little surprise to many Bank of Japan officials, who had largely factored in the recession and expect growth to rebound in coming quarters as consumption and factory output show signs of a pick-up.

While the data will be closely scrutinised by the policymakers, the BOJ is widely expected to keep monetary policy steady at its rate review this week, analysts say.

“China’s economic slowdown did not have a big impact on Japan’s Q3 GDP, but we could see a negative impact in the following quarters,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

“The government does not have to respond right away, but economic stimulus could become more likely if things do not get better.”

(Additional reporting by Stanley White and Chang-Ran Kim; Editing by Eric Meijer)


Source: R-Business

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