BOJ's Cure for the Summertime Blues More Easing

Press Release

30 May 2014
  • External factors could force more easing by the central bank
  • Energy-related concerns in Europe could end up helping Japan's economy
  • Japan's economic recovery on track

The Bank of Japan will likely be forced to amplify its monetary easing program in July or August in response to dimming prospects for GDP growth in the country, according to Nikko Asset Management's latest Evolving Markets research report. Analysts at the Tokyo-based asset manager believe the BOJ's inability to forecast the slowdown in the Chinese and Eurozone economies, as well as the negative impact on the central bank's inflation target from generally lower commodities prices, will prod the BOJ to act. Furthermore, news reports indicate that the BOJ is also worried about the surprise effect from the possible resurgence of the El Nino weather pattern, which could intensify Pacific hurricane activity beginning around September.

"We've been consistently, and correctly, on the other side of the consensus view that the BOJ would ease further in the first half of 2014," said John F. Vail, Chief Global Strategist and Chairman of the Global Investment Committee at Nikko Asset Management. "And we're happy to continue to be contrarian in our call for additional easing in the second half, based on external factors outside the BOJ's control."

Another external factor impacting the Japanese economy is the energy situation in Europe, where Western-allied countries opposed to recent Russian moves are facing the need to cut their reliance on Russian natural gas that flows through the troubled Ukraine region. The G-7 is urging its members to tap other sources of energy, which for Japan means restarting its nuclear power plants that have been offline following the Great East Japan Earthquake in 2011.

"Japan stands to benefit the most from increasing the use of nuclear power, as it would reduce the trade deficit and boost GDP growth substantially," said Vail. "At the same time, corporate profit margins would rise and real personal income would also get a boost from lower energy prices."

In analyzing recent Japanese economic statistics, the firm's analysts noted that Japan's first quarter GDP growth of 5.9% far exceeded the consensus view of 4.2% (and Nikko Asset Management's own 5.3% forecast) and would have been much higher if not for a "statistical discrepancy factor." Despite an expected plunge of some 15% QoQ in personal consumption in the second quarter owing to the VAT hike in April, the firm sees a rebound in the second half with personal consumption anticipated to end 2014 almost flat versus the previous year.

"We believe Japan's recovery is on track and will, barring an external shock, weather the VAT hike," said Vail. "Our positive outlook on inventory building and net exports is likely what sets us apart from consensus, but our forecasts are hardly aggressive, in our view."

For 2014, Nikko Asset Management sees GDP registering 1.7% growth versus a consensus view of 1.3% (as reported by Bloomberg).

– ENDS –

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About Nikko Asset Management

With USD203.9 billion* under management, Nikko Asset Management is one of Asia’s largest asset managers, providing high-conviction, active fund management across a range of equity, fixed income, multi-asset and alternative strategies. In addition, its complementary range of passive strategies covers more than 20 indices and includes some of Asia’s leading exchange-traded funds (ETFs).

Headquartered in Asia since 1959, Nikko Asset Management and its subsidiaries employ personnel representing around 30 nationalities, including approximately 200 investment professionals**. The firm has a presence through subsidiaries or affiliates in a total of 11 countries and regions. More than 400 banks, brokers, financial advisors and life insurance companies around the world distribute the firm’s products.

The investment teams benefit from a unique global perspective complemented by the firm's historic Asian DNA, striving to deliver consistent excellence in performance. The firm also prides itself on its progressive, solution-driven approach, which has led to many innovative funds launched for its clients.

For more information about Nikko Asset Management and to access its investment insights, please visit the firm’s homepage.

* Consolidated assets under management and sub-advisory of Nikko Asset Management and its subsidiaries as of .
** Including employees of Nikko Asset Management and its subsidiaries as of .

Important Information

Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets which are targeted by the fund is not necessarily indicative of the future or likely performance of the fund. Nikko AM Asia reserves the right to make changes and corrections to the information, including any opinions or forecasts expressed herein at any time, without notice. Nikko AM Asia accepts no liability for any loss whatsoever arising from any use of or reliance on any of the opinions expressed. Whilst Nikko AM Asia believes that the information is correct at the date of production, no warranty or representation, whether express or implied, is given to this effect and Nikko AM Asia expressly disclaims liability for any errors or omissions. The information contained in this document is given on a general basis without obligation and on the understanding that any person acting upon or in reliance on it, does so entirely at his or her own risk.
Nikko Asset Management Asia Limited, Registration Number 198202562H

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