The gloom is lifting a bit from the Japanese economy, as sharp growth from China and other Asian neighbors is lifting exports and spurring more capital spending by the nation’s manufacturers, though Beijing’s recent moves to prevent overheating could limit Tokyo’s recovery.While the spotlight in recent weeks has been on the travails of two corporate icons—quality problems at Toyota Motor Corp. and the bankruptcy of Japan Airlines Corp.—profits for most Japanese companies surged at the end of 2009, while the economy grew faster than a 4% annualized pace for the three months ended Dec. 31.
The economic figures also showed that a slight increases in domestic demand also helped lifted Japan out of its worst recession in the post-war era.Private consumer spending, which accounted for about 58% of real gross domestic product, rose 0.7%, supported by government measures to encourage purchases of energy-efficient electrical appliances and cars. That was the third straight quarter of gains. As a result, domestic demand added 0.6 percentage points to GDP growth, and external demand—exports minus imports—contributed 0.5 point. This was the first time since January-March 2008 domestic demand pushed growth higher.
The GDP deflator—an indicator that gives a broad reading of price trends—worsened to a record low of a 3% decline in October-December from the previous year, compared with a 0.6% decrease in the previous quarter. A fall in domestic prices pushed down the deflator as the gap between supply and demand is still increasing.
RBA minutes from Feb showed that the central bank kept interest rates unchanged this month in a “finely balanced” decision due to concerns that the European debt crisis could weaken the global economic recovery. RBA noted, however, that “Members expected that if economic conditions continued to improve as expected, further increases in the cash rate were likely to be necessary. But they did not regard that outlook as ring an increase at every meeting.” In addition, “Members noted that many market participants expected a further increase in the cash rate at this meeting. They concluded that, on balance, the stronger case was to leave the cash rate unchanged for the time being.” Markets are likely to take this RBA statement as having a hawkish stance. For AUD, the 5- and 20-day moving averages are just crossing to the upside and so we could see further AUD gains ahead. Fibonacci retracements of the Jan-Feb drop are .8953 and .9042 (50% and 62%, respectively).
The Greek crisis remains a market focus with euro zone Finance Ministers choosing a tactic of strategic ambiguity. The market has been left uncertain about how the EU would support Greece in its endeavors to shrink its budget deficit. It is still unclear whether the finance ministers will provide some form of aid to Greece. Instead, the ministers, at the conclusion of yesterday’s meeting, urged Greece to be prepared to undertake additional steps at the March 16th review if insufficient progress has been made. The impact has been felt in the bond markets where Greek bonds have been sold off further with the German/Greek 10-year spread widening by the most in three weeks. The comparable German/Portuguese spread has also widened slightly today, by 6 bp. UK inflation accelerated to its highest level since November 2008 in January, with a 0.2% m/m decline in the main CPI index (from +0.6%) corresponding to a 3.5% yearly rate (up from 2.9%). There was a significant upward bias from the adjustment in the UK VAT rate (which was brought back to +17.5% in January), with strong rises reported in prices of food (+1.9% y/y), alcoholic bevs & tobacco (+6.2% y/y) or again transport (+11% y/y) prices. All goods inflation ran at a +3.9% y/y rate in January while all services inflation was reported at +3.0% y/y.