According to a Reuters article, Japan unexpectedly slipped into a recession at the end of last year, losing its title as the world’s third-biggest economy to Germany and raising doubts about when the central bank would begin to exit its decade-long ultra-loose monetary policy.
Fortunately, the economy is not the stock market in the real world of investing and there is a lot going on in Japan at the moment. In case anyone just got back from a long vacation, Japan is riding high now.
Supported by a weak Yen, I continue to expect Japanese stocks to go higher from here amid optimism that Japan has finally escaped from the doldrums of deflation, and big industry that has been pumping in investment from semiconductors to artificial intelligence. Japanese equity-focused ETEs and mutual funds have seen inflows in every week this year but one, according to EPFR data.
My exposure to Japan is through an efficient, low expense ratio, and value-weighted ETF that covers the broad Japanese listed markets. At the risk of sounding like a broken record, rather than pursuing immediate market gains, I consistently prioritize a disciplined and strategic investment approach.
Here is a section:
Some analysts are warning of another contraction in the current quarter as weak demand in China, sluggish consumption and production halts at a unit of Toyota Motor Corp all point to a challenging path to an economic recovery.
“What’s particularly striking is the sluggishness in consumption and capital expenditure that are key pillars of domestic demand,” said Yoshiki Shinke, senior executive economist at Daiichi Life Research Institute. “The economy will continue to lack momentum for the time being with no key drivers of growth.”
Japan’s gross domestic product (GDP) fell an annualised 0.4% in the October-December period after a 3.3% slump in the previous quarter, government data showed on Thursday, confounding market forecasts for a 1.4% increase.
Two consecutive quarters of contraction are typically considered the definition of a technical recession.
While many analysts still expect the Bank of Japan to phase out its massive monetary stimulus this year, the weak data may cast doubt on its forecast that rising wages will underpin consumption and keep inflation durably around its 2% target.
Economy minister Yoshitaka Shindo stressed the need to achieve solid wage growth to underpin consumption, which he described as “lacking momentum” due to rising prices.
“Our understanding is that the BOJ looks comprehensively at various data, including consumption, and risks to the economy in guiding monetary policy,” he told a news conference after the data’s release, when asked about the impact on BOJ policy.