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Japan Economy Outlook of the Week
ECONOMIC OVERVIEW
Renewed expectations for the status quo
• In the wake of the Bank of Japan’s (BoJ) press conference on
June 13th, Citi analysts believe that market concerns that the
BoJ may follow other central bank policymakers in raising
interest rates amid higher inflation may have receded.
• In the view of Citi analysts, renewed expectation for the status
quo in Japan’s policy rates, as well as lower expectations of
large rate hikes in the U.S, may have pushed down JGB yields
this week.
• In the wake of the recent run-up in oil prices, Citi analysts
have revised down their gross domestic product (GDP)
forecasts to 1.5% in 2008 and 1.0% in 2009 from 1.7% and
1.4% respectively.
EQUITIES
Cautious in the short term
Week ending June 20, 2008:
Nikkei 225: -0.23%
• Although Japanese stock prices grew 20.4% from March 17th
to June 13th on a local currency basis, Citi analysts believe it
may be premature to be overtly optimistic about domestic
demand and the financial sectors.
• Indeed, rising long term interest rates and lower business
confidence and supply side cost inflation may put corporate
earnings under pressure. However, Citi analysts believe that
overall inflation may be tempered in Japan, and may bode well
for auto, nuclear power and machinery industries that excel in
energy saving and environmental technologies.
• Citi analysts continue to remain cautious in the short-term, and
favour companies and sectors that benefit from yen weakness,
have excellent energy saving and environmental technologies,
and are strong in newly industrialized countries (NICs).
FIXED INCOME
10-year JGB to trade in narrow range
As at June 20 vs. June 13, 2008:
2-yr JGB: 0.89/1.02 5-yr JGB: 1.36/1.54 10-yr JGB: 1.77/1.87
• In the face of slowing global growth, surging commodity prices
and weak consumer demand, Citi analysts believe that higher
headline inflation is unlikely to sustain.
• As such, Citi analysts expect the Bank of Japan to maintain
current interest rates and keep the 10-year Japanese
Government Bond (JGB) prices trading within a narrow range.
• Longer term, Citi analysts expect yields on the 10-year
government bonds to edge higher once the global economy
recovers more firmly. Citi analysts are underweight Japanese
government bonds and favour exposure to shorter-term bonds.
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PLEASE VISIT THE CONTRIBUTOR'S WEBSITE
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Internet marketing, Lead Generation
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