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Round Up – Japanese Unease

James Boston
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Japan closed out January by recording the largest monthly fall in its stock market since early 2012. The TOPIX gave up 6.3% on the month with most of the drop (3.5%) coming over the last week. Weighing on Japanese markets at present are a combination of the Chinese slowdown and analysts concerns over domestic corporate returns. Next week is earnings season in Japan where over 500 companies are scheduled to report, many domestically focused companies are now expected to miss their targets as taxation measures have been putting pressure on consumer spending.

The recovery in the Japanese Yen has run out of steam over the past few days. After beginning the year at a 5 year low of 105.31 against the US Dollar, the Japanese currency made steady gains until the escalation of the emerging market unease at the start of this week, the Yen attempted a second test of the key 102 support level overnight but failed to break through and is now languishing around the 102.50 level. Although Japan was in action overnight, most Asian desks were shut due to the Chinese New Year, this obviously manifested as thin markets in Asian interests and was a likely contributing factor to the lack of Yen momentum.

China yesterday re-affirmed the preliminary Purchasing Managers Index figure of 49.5, although an upward revision was more of a hope than an expectation, the fact that it did not materialize put further pressure on emerging markets. The Chinese PMI figure is not only significant as a major indicator of the Chinese economy, it is further taken as one of the key bell weathers for the prospects of the global economy. Furthermore, China as the world’s largest commodity consumer, bears a direct impact on the fortunes of many emerging market economies.

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