Japanese Prime Minister Shinzo Abe pledged on Wednesday to raise incomes by 3%annually over 10 years and to set up special economic zones to attract foreign technology, people and funds as part of his strategy to revitalise the world's third-biggest economy. An income boost is vital to the success of Abe's ambitious programme aimed at ending years of entrenched deflation and decades of economic stagnation. Abe unveiled the income target in a speech on Wednesday along with other steps to be included in a package to be approved by the cabinet on June 14. (Source: StarBiz)

Investment Highlights

In December, Abe vowed a three-pronged strategy including:- (1) policy easing by Bank of Japan; (2) government spending and policies to improve investment; and (3) wages and consumer confidence. Japan's economic recovery is apparently gaining traction now, driven in part by the adoption of the fresh easing framework.

Japan’s wages rose by the most in a year in April which is significantly supportive of the national campaign to re-inflate the world’s third-biggest economy after 15 years of falling prices.

In April, monthly wages including overtime and bonuses rose 0.3% YoY to JPY273,427 (USD2,746). Abe aims to sustain investor and public confidence amid market volatility, with the Topix index of stocks swinging betweens gains and losses lately.

Growth in 1Q13 rebounded, led by consumption and net exports. Despite a marginal growth of 0.2% during the quarter, the IMF projects growth to reach 1.6% for the full year.

Because of the rising impetus of private demand, growth in 2014 will only slow downmoderately. Based on the latest projection by the IMF, growth will likely come in at 1.4%. Slower growth in 2014 will likely result from the fiscal consolidation of planned consumption tax increase and the unwinding of reconstruction spending.

By setting a clear time frame for achieving 2% inflation underpinned by a large-scale expansion of asset purchases, the BoJ has taken an important step for raising growth and inflation. Initial signs suggest that the new monetary framework is showing signals of effectiveness.

Indicators from household and business surveys and breakeven inflation rates suggest a gradual pickup in inflation expectations, albeit still well below the inflation target.

Overall, policy success in Japan depends crucially on the implementation of the highly ambitious fiscal and growth reforms. A complete and successful reform will be beneficial to the economy of Japan, while strengthening global growth will bring forth economic stability in the global arena.

In tandem with relaxed policies regionally,BNM has probably resolved to closely managing foreign exchange intervention. In support of favourable trades in Malaysia, the Ringgit currency could be restrained from strong appreciation as BNM accumulates more reserves.

Elsewhere, the Malaysian economy continues to remain vulnerable to external shocks as foreign investors sell the world’s most expensive equities on speculation that the US will scale down on its monetary stimulus.Similarly, Ringgit will likely to remain weak in the near term owing to these capital flights.

Source: AmeSecurities