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Japan falls into technical recession

MADRID | The Corner | The Japanese economy unexpectedly entered recession in the third quarter, just after the GDP decreased by an annualised pace of 1.6 per cent, versus forecasts that it would rebound by 2.2 per cent. Japan contracted by 0.4% in the 3Q14, leaving the country in a technical recession, which drove the Nikkei to near 3% losses and raised serious questions about the planned sales tax hike next year.

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Downgrading EM, upgrading Japan

LONDON | The Corner | Emerging market equities no longer hold the attractions they did earlier in the year, according to Barclays analysts. They had previously recommended an overweight stance and now they’re cutting to neutral. In the same time they are raising exposure to Japan.

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Can China keep running?

MADRID | The Corner | A bull market. But how sustainable? Asia ex Japan has just breached its 2011 high. Key to this is China. Over the last month MSCI China is up 7% on strong volume. It is now up 5% for the year. Easier monetary conditions, better growth data and improved earnings, meeting low valuations and poor sentiment, have driven the China rally and recent outperformance.

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In some cases the central bank cannot control inflation…

SAO PAULO | By Marcus Nunes via Historinhas | …while in others it cannot promote it! Japan falls in the latter category. According to this article in the WSJ “Japan´s price target looks difficult.” The nationwide core consumer price index rose 1.3% from a year earlier in June, after adjustment for a recent sales-tax hike, below a 1.4% increase the previous month, according to government data released Friday. Inflation moderated in May and June due to falling energy prices and a stable yen, which has put the break on growth in import costs.

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Will the Bank of Japan act again?

MADRID | The Corner | Will the Japanese Central Bank act again to raise inflation expectations and get inflation to reach its target of 2%? Some analysts believe the BoJ should allow the economy to overheat a little in order to promote higher inflation expectations. “Kuroda is convinced that the country will reach its inflation target of 2% in the FY2015,” experts at JP Morgan pointed out on Thursday, “but the help of the yen’s depreciation is fading since expectations of further monetary expansion are lowering too.”

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Japan would be better off depressed!

SAO PAULO | By Marcus Nunes via Historinhas | This can be inferred from a speech by Rintaro Tamaki, Deputy Secretary-General and acting Chief Economist of the OECD, who for 35 years worked for Japan´s Ministry of Finance: “The chief economist of the Organization for Economic Cooperation and Development, Rintaro Tamaki, recently gave a talk that should be heard by all Japanese economists and policy makers. He observed that the aim of Japanese economic policy is still mainly about strengthening growth.”

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Stage two of the Japan macro trade

LONDON | By Barclays analysts | The Japan macro trade has been off the radar in 2014, but that should change (for better or worse) in the coming few months. US yields have likely bottomed, while the effect of Japan’s VAT increase appearsmanageable. More important, PM Abe has unveiled more details of his 3rd Arrow (the structuralreform program), including a long-anticipated cut in the corporate tax rate.

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Japan’s “growth strategy”

LONDON | By Kyohei Morita and Yuichiro Nagai at Barclays | The Abe administration is currently aiming to reach a Cabinet decision on its new growth strategy and “big bone” economic and fiscal reform plans around end-June. The discussions are far-reaching, but from the perspective of market participants, we believe there are four near-term focal points: 1) corporate taxes; 2) labor market reforms; 3) reforms to the pension system, including the Government Pension Investment Fund (GPIF); and 4) special national strategy zones. Here we focus on corporate taxes, likely the only subject of concrete discussion for the markets in June.

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Money is not long-run neutral or is the CFS’s “divisia” right?

SAO PAULO | By Benjamin Cole via Marcus Nunes’ Historinhas | One of the bromides of modern macroeconomics is that “long-term, money is neutral.” The above maxim makes sense on some levels. A nation is made rich or poor by its investment in infrastructure, education, farmland, factories, work ethics and the like. Running printing presses, per se, is meaningless.