A Look At The Week’s Economic Events

moneyTwo interesting developments on the economic front are worth noting this week. One is the anxiety brought about the US government budget and the second is the moderate economy recovery in Japan.

US Congress Controversy Spooks Asian Markets

As the U.S. government goes into shutdown mode, Secretary of State, John Kerry, has told Congress to think “long and hard” about the message the partial government shutdown is sending overseas about America’s credibility. He is urging them to “end it now, end it today.

The failure of US lawmakers to avert a government shutdown sparked concern that the nation’s US$16.7 trillion debt limit might not be raised in time. The deadline is just less than 2 weeks away. As a result, Asia-Pacific shares came off the boil as the US Treasury also warned that a federal default could lead to a recession as bad as the 2008 financial crisis or worse.

It seems that short sellers may have been taking advantage of the weak market. Last week three commodity players, namely Blumont (SGX: A33), LionGold (SGX: A78) and Asiasons Capital (SGX: 5ET) were suspended after their shares plunged.

Mike Jones, a currency strategist at Bank of New Zealand, wrote in an e-mail to clients that “Creeping worries about the U.S. debt ceiling are starting to unnerve investors. He went on to say: “Expect more whippy and nervous trading”.

Bank of Japan (BoJ) puts additional stimulus on hold

“Abenomics” – the fiscal and monetary stimulus policies implemented by Prime Minister Shinzo Abe – has fuelled a stock-market rally that helped lenders profit from sales of fee-based investment products.

In addition, the central bank data showed that borrowings from businesses are on the increase as the economy recovers. Loans at Japan’s biggest banks have risen the most in four years.

In the view of the modest economic recovery and an improvement in business confidence, the Bank of Japan is refraining from adding to monetary stimulus. Meanwhile, Prime Minister Abe has decided that the economy is strong enough to weather an increase in sales tax.

However, the governor of the BOJ is still cautious. Haruhiko Kuroda said the bank will adjust its policy if any upside or downside risks emerge and will continue easing until a stable inflation target is achieved.

The BoJ’s determination to stoke inflation rates probably bodes well for Japan’s residential companies. One example might be Tosei Corporation (SGX: S2D), whose diverse operations include real estate in Japan.

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