Japanese Economic Update - Week Ending 22nd August 2014

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Japanese Nikkei 225 saw its 8th day of gains today off the back of some solid economic data and positivity seen late in the US. A small, if not surprising gain of just 0.08% marked just how sensitive the Japanese index is to news out of the US and we await the release of the Federal Reserve's July policy meeting minutes later this today.

Japanese exports rose for the first time in 3 months along with a positive increase in imports. Up 3.9% on 2013, exports were largely helped by a pickup in vehicle and electrical machinery orders. Imports, up 2.3% were mainly due to an increase in oil and gas and not driven by domestic demand for overseas products. This pushed the trade deficit higher than June's 822bn Yen, making July's 964bn Yen ($9,4bn) deficit slightly higher than expected.

As Japan hopes for a move towards an export led economy many are concerned that the current climate in Europe will slowdown demand and start to effect the entire region and not just Japan. With Europe struggling to see a constant improvement and the United States looking stronger internally, whether Japan can manufacture and export its way out of its current slump is something yet to be seen.

Japan's economy fell an annualised 6.8% in the second quarter of 2014, its largest drop since the tsunami of 2011 and has largely been attributed to the Sales Tax increase which took place in April. The increase which saw Sales Tax go from 5% to 8% was well publicised and many consumers and businesses made sure they got their large purchases in before the April 1 deadline. Subsequently retail spending has drastically reduced as both buyers wait for prices to start to come down. Bearing in mind that the government plans to increase the tax again in 2015 by a further 2%; many analysts are uncertain how a 10% Sales Tax will encourage domestic demand.

The Japanese have a growing issue with their social welfare costs and as the government looks to ways of pushing the economy forward the small steps that the Bank of Japan are implementing to induce growth are maybe too small and too far between however with a market that is so in tune with the US's there is every chance that the Nikkei at least will see a good end to the year.

Major Asian Indexes:

Nikkei 225 15,454.45 (+0.03%)

SSE Comp at 2,235.42 (-0.44%)

Hang Seng 25,147.49 (+0.10%)

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DISCLAIMER  The views, opinions, findings, and conclusions or recommendations expressed on this service are those of the author(s) and do not necessarily reflect the views of the Hexagon Capital Management. All market data within this release is for your general information and enjoys indicative status only. Hexagon Capital Management does not accept any responsibility for its accuracy or for any use to which it may be put. All share prices and market indexes delayed at least 15 minutes. 52 week high and low values are calculated from close price data.