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How Japan Performed with Respect to the World Economy in October

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What macroeconomic indicators suggest

In the last one-month period ended at October 28, most of the ETFs such as the SPDR Euro Stoxx 50 ETF (FEZ), the SPDR S&P 500 ETF (SPY), the iShares MSCI All Country World Index (ACWI), and the iShares MSCI Japan ETF (EWJ) provided positive returns. These returns were 8.7%, 8.9%, 7.3%, and 8.8%, respectively.

The ACWI is invested in large and giant capitalization stocks such as Apple (AAPL), Microsoft (MSFT), ExxonMobil (XOM), Johnson & Johnson (JNJ), and Wells Fargo (WFC). The SPY ETF is also invested in large capitalization stocks such as Apple (AAPL), Microsoft (MSFT), Johnson & Johnson (JNJ), General Electric (GE), and JPMorgan Chase (JPM).

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Important world events

On October 22, the ECB (European Central Bank) declared that it will keep its key benchmark interest rate constant at 0.050%. Accordingly, a separate trillion-euro-bond-buying program is expected to start in December, to stimulate the economy. If most economic indicators continue to move as expected by the ECB, we could see a rate hike soon.

On October 5, the Trans-Pacific Partnership (or TPP) agreement was introduced after seven years of negotiations among the 12 Pacific Rim countries. Its main purpose is to promote economic growth, reduce the trade barriers such as tariffs, increase productivity, raise living standard, and reduce poverty in the member countries.

On October 28, the US Federal Reserve’s Chair, Janet Yellen, also came out stating that the Fed intends to keep the key benchmark interest rate unchanged at 0%–0.25%. However, there was a signal for the timing of a rate hike in December if the economic indicators continue to move as expected by the Fed.

Most commodity prices fell over the last two weeks. On October 26 natural gas fell ~10% and in the month of October it fell ~ 18% due to large inventory, not to mention mild winter weather expectations. This also contributed to the more volatility in global markets.

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How Japan performed with respect to the global economy

The graph above shows the performance of different ETFs in the last one-month period.

On October 7, Japan’s current account report came, standing at ¥1.6 trillion as compared to ¥1.3 trillion on September 7.

On October 13, Japan’s bank lending data came, standing at 2.6% as compared to 2.7% on September 7. Bank lending data shows the total value of outstanding bank loans issued to consumers and businesses. This data shows that there was a slight slowdown in consumer spending.

On October 30, the Bank Of Japan (or BoJ) announced its statement concerning the monetary policy review. The Bank stated that it will purchase the Japanese government’s bonds so that the monetary base rises at an annual pace of about 80 trillion yen. The bank plans to purchase ETFs so that their amounts outstanding rise at an annual pace of about 3 trillion yen. This statement shows that the BoJ was trying to stimulate the economy.

Read the Market Realist series Bank of Japan Meeting Eyed: The EWJ ETF Down to learn more.

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