Recent CPI data from Japan has shown that inflation has slowed. The BOJ (Bank of Japan) has stated that inflation is currently at 1.3% (reading in June) excluding the sales tax hike. Including the sales tax hike, this adds 2% to the inflation rate of the reading in June (3.3%). The previous reading of May's CPI data was 3.4%, so a drop in 0.1% (in relation to June's reading). Thus, we expect the BOJ to continue to ease so that it can meet its 2% inflation benchmark. Inflation is not the only worry that the BOJ has, another worry is the export market. Even though the Yen is low, much of the export growth is dependent on the recovery of other countries. As noted by the BOJ the export market may be facing problems due to structural factors. These structural factors include moving production abroad and weakening global competitiveness. Japan needs to kick-start their export market as it will help inflation (will address the low wage problem as well) and growth. Many investors are wondering about what exit strategy the BOJ will implement for QQE (Quantitative and Qualitative Monetary Easing). In recent minutes, the BOJ has stated that is too early for discussions. As of yet no exit strategy has been devised, although distant it remains a problem.
It's a jam-packed week for US data this week. This weeks data should provide us with some insight of how well the US recovery is going. We expect that the Fed will continue tapering by $10bn dollars this month. If the labour market data this week shows slack then we could see the rate hike being delayed. In addition, it will be difficult to please investors with GDP data as the margin between the forecast (3.1%) and the previous reading (-2.9%) is very wide. This allows room for disappointment.
It's a jam-packed week for US data this week. This weeks data should provide us with some insight of how well the US recovery is going. We expect that the Fed will continue tapering by $10bn dollars this month. If the labour market data this week shows slack then we could see the rate hike being delayed. In addition, it will be difficult to please investors with GDP data as the margin between the forecast (3.1%) and the previous reading (-2.9%) is very wide. This allows room for disappointment.
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