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Foolish Weekly Macro Wrap Up

global-news logo Let’s take a look at two global economic updates or interesting key developments that happened last week that investors should take note of.

Japan’s growth momentum lend support to Tax Raise

In an attempt of expand the economy of Japan, Prime Minister Shinzo Abe advocated “Abenomics” – a combination of measures such as aggressive quantitative easing from the Bank of Japan, a surge in public infrastructure spending and competitive devaluation of the yen.

Although the economic policies have led to a burgeoning trade gap of 960.3 billion yen ($9.8 billion), there have been positive results such as:

  • An upward revision of the GDP growth for the April-June period by the Japan Cabinet Office on 9th September
  • A 14.7% surge in Japan’s exports from a year earlier,
  • And a rebound in shipments to China in the wake of bilateral tensions last year.

These optimistic signs are offering support to Japan as Prime Minister Shinzo Abe appears poised to raise the consumption tax rate from the current 5% to 8% from April 2014. While the imposed sales-tax increase is to potentially curb the streak of trade deficits, they will also have to cope with rising energy costs with the nation’s nuclear industry shuttered.

Investors who are positive about Japan’s recovery can participate in its growth through the Japan-related plays. One of which is Lyxor Japan (Topix) Fund 10 (SGX: CW4), an exchange traded fund which mimics the performance of the Tokyo Stock Exchange (TSE). It allows investors to participate in the performance of the Japanese corporate world and gain exposure to instant market diversification.

The 15 years of deflation in Japan has led to stagnant house prices. However, things are about to change with BOJ Governor Haruhiko Kuroda emphasising that the central bank would not simply focus only on the inflation goal of 2%, but intend to ingrain expectations of sustained and ongoing price rises.

This will bode well for companies such as Saizen REIT (SGX: DZ8U), which owns and invests in a diversified portfolio of income-producing real estate located in Japan.  A hike in Japan’s inflation rate will likely increase household rents and prices, leading to higher NAV and profits for Japan developers.

No Tapering Surprise

As the news of no Fed tapering left investors in a shock, stocks on the Dow industrials and S&P 500 indexes climbed to record highs and bond yields moved sharply lower.

Amid signs of an improving economy,  the focus for the past few months has been on whether the Fed would begin tapering its stimulus, and by how much

However, the Fed chairman Ben Bernanke said that the Fed was unconvinced with the pace of economic growth and felt the timing was not right to make a change in quantitative easing. The Fed has insisted it will not begin raising the funds rate before the unemployment rate falls to 6.5% and inflation rises to 2.5%. Unemployment is at 7.3% and inflation remains low at 1.5%.

While there may be some breathing room after the U.S. Federal Reserve decided to continue its $85 billion a month of stimulus spending, jittery markets will be looking for another new focal point for directions. And traders may be cheering as more positive developments emerge from a stable Europe and improving data on China and Japan.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.   Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.