The recent tragic attack on flight MH17 during the conflict between Ukraine and Russia and the crisis between Palestine and Israel had increased demand for safe haven assets. The Yen was one of the assets that rose due to these events. Inflation is steadily rising, much of this can be attributed to the recent sales tax hike in April from 5% to 8%. We expect consumer spending to gradually increase as firms pay higher wages to employees. This will be caused by the 'third arrow' being fired by Prime Minister Shinzō Abe. The monetary policy statement minutes released last Friday (18/07/2014) stated that the board are concerned about exports. The health of exports depends on the pace of the recovery of other countries. The minutes said that one of the causes of a drop in exports had been caused by structural factors. These structural factors are that Japanese firms have decided to shift production centres abroad and there is continuing weakness in global competitiveness. On the plus side, unemployment is gradually falling which shows that the economy is gradually recovering.
Meanwhile the Euro bloc has been suffering from bad data. A tidal wave of bad data has been appearing this month, raising many eyebrows of concerned investors. Some of the most recent data consisted of German ZEW economic sentiment (Actual: 27.1, Forecast: 28.9, Previous: 29.8, 15/07/2014) and industrial production (Actual: -1.1%, Forecast: 0.3%, Previous: 0.7%, 14/07/2014). It just goes to show that investors have eased slightly back on a positive outlook for the German economy. This is very important as Germany is the powerhouse of the Euro bloc and thus any impact in Germany could be devastating for other economies in the Euro bloc. Industrial production has also slowed significantly showing signs that there are cracks in the current recovery. This week on Thursday (24/07/2014) will prove to be interesting on whether the current recovery is stable. Another problem is the strong Euro has been hurting the export market, the ECB need to address this, to ensure a stable recovery.
Meanwhile the Euro bloc has been suffering from bad data. A tidal wave of bad data has been appearing this month, raising many eyebrows of concerned investors. Some of the most recent data consisted of German ZEW economic sentiment (Actual: 27.1, Forecast: 28.9, Previous: 29.8, 15/07/2014) and industrial production (Actual: -1.1%, Forecast: 0.3%, Previous: 0.7%, 14/07/2014). It just goes to show that investors have eased slightly back on a positive outlook for the German economy. This is very important as Germany is the powerhouse of the Euro bloc and thus any impact in Germany could be devastating for other economies in the Euro bloc. Industrial production has also slowed significantly showing signs that there are cracks in the current recovery. This week on Thursday (24/07/2014) will prove to be interesting on whether the current recovery is stable. Another problem is the strong Euro has been hurting the export market, the ECB need to address this, to ensure a stable recovery.
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