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Japan dominate Asian headlines as the economic hardship continues

Publish Date28/12/2012 02:27:16 PM

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Japan dominate Asian headlines as the economic hardship continues

Japan was the main headline in Asia last week, highlighted by pledges from Japan’s new leadership that aims to end deflation and stimulate economic growth.

Japan’s Consumer Prices Index (CPI) fell in November to ensure the challenge for newly-elected Prime Minister Shinzo Abe`s bold pledges to end deflation and spur growth using aggressive monetary easing.

Policy makers will have to add new measures in order to face the recent slowdown in economic performance amid the recent negative indicators through the world’s third largest economy; Japan’s Industrial Production Index for November declined sharply by 1.7% confirming the continued growth deceleration.

On December 20, the Bank of Japan (BoJ) left rates steady between 0.0% and 0.1% to spur the economy; the credit lending program was kept unchanged at 25 billion yen, while the asset purchase program, however, was expanded to 76 billion yen from 66 trillion yen.

Japan’s new Prime Minister, Shinzo Abe urged the Bank of Japan to come up with powerful policies with government to sustain and further stimulate the economy, as it’s important for Japan’s new government to adopt aggressive stimulus measures to support growth.

The new Finance Minister, Taro Aso, called for cooperation between the government and the Bank of Japan in order to control yen’s appreciation especially after it cost Japanese auto companies substantial losses.

Taro Aso noted that the Bank of Japan did not respond quickly to deflation as the bank needed a larger budget, while Abe presses the BoJ to control inflation and adjust target to 2.0%.

Japanese companies are negatively affected by the yen’s appreciation, where a stronger yen hurt companies’ revenues, as cars companies report lower sales especially in Chinese markets after the recent dispute between the two countries over the disputed islands.

Caution remains the theme amid thin trading volumes; the “fiscal cliff” is the predominant concern. Trading volumes in global markets were thin throughout the week, amid holidays in Europe and the United States and ahead of the New Year’s celebration.

The Eurozone debt crisis and U.S. fiscal cliff had a major effect on Japanese growth proportions, since the Eurozone is an important market for export and any major shifts in fiscal cliff matter may stimulate Japan’s economy.

The so-called “fiscal cliff” remains center stage as the final week of this year is upon us and the Republicans and Democrats did not yet reach an agreement on budget.

Obama will meet with Congressional leaders at the White House on Friday, in the final last-minute bids to avoid the year-end “fiscal cliff” of across the board tax increases and deep spending cuts set to take effect in less than four days.

Without Congressional action on fiscal cliff, current tax rates will expire on Dec. 31, resulting in around $600 billion tax increase and spending cuts that would touch nearly all Americans which economists believe could send the economy back into a recession in 2013.

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