First-quarter gross domestic product figures were released last week, but there was no major market reaction as the results were no surprise.
Although annualized growth of 5.7 percent is impressive compared with the previous quarter, the figures reaffirmed the nation’s economy was driven by exports.
While domestic demand showed growth after falling three straight quarters, we still can’t be too optimistic. Consumption is hanging on despite job and income uncertainties, but capital investment remains sluggish.
Foreign investors have actively bought Japanese stocks since the spring, but with overseas markets being sluggish, it appears their enthusiasm has begun to wane.
We are also starting to see comparatively good economic indicators related to the consumption and employment situations in the U.S., which had long appeared opaque, with a cautious Federal Reserve stance and lackluster indexes. The negative signs are nonetheless not strong enough to dispel the view that the recovery is slow.
The biggest problems in the U.S. are corporate earnings and capital investment. Investor sentiment has also deteriorated as trust in corporate earnings figures wavers due to distrust over accounting. That is one reason why stock prices have not reacted to better employment and consumption figures.
Over the past few years, U.S. corporations have been absorbing funds from overseas investors, thus prompting a stronger dollar. But uncertainty in the corporate sector has reduced incoming investment, leading to the dollar’s recent weakness.
However, changes in currency supply and demand have reduced upward pressure on the yen and increased the possibility of renewed dollar strength.
Japanese financial authorities are estimated to have sold more than 2 trillion yen to buy dollars in currency markets. This plus the drop in the volume of Japanese stocks bought by overseas investors indicates that while there is still yen-buying pressure from export-related firms, there is little sign of the massive lags in dollar-selling and yen-buying of several weeks ago. If Japanese investors also put more money into foreign currency-denominated assets, the yen may weaken.
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