Marcus Holland: Japan’s equity markets are beginning to gain traction lifting in the broader Nikkei driving up the value of the Exchange Traded Fund (ETF) DXJ (the Wisdom Tree Japan Hedge Equity) fund. Japanese data although mixed has shown an increase in liquidity which has been a benefit to equity bourses which declined since the middle of May. Japanese investors continue to focus on the potential tapering of the U.S. bond purchase program which could begin as early as this month.
The monetary base in Japan which reflects the value of positions held by the Bank of Japan is increasing at a rapid rate. The base under the currency quantitative easing program has expanded and is up nearly 40% year over year and wage earnings rose 0.4% in July.
Unfortunately, the small increases in inflation have been offset by a decline in base wages which declined 0.4% and the June figure was revised to -0.6% from -0.1%. Base wages are seen as the permanent part of wage income, and a decline in base wages with an increase in food and energy is a stagflation that erodes consumer spending.
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