Thursday, May 21, 2009

Second derivative may not matter when Japan economy is this bad

The Japanese economy shrink at a 15% annualized rate in the first quarter of 2009. These are horrible numbers lead by shrinking export sector. Of course, this is not out of line with some of the other Asian economies. Japan has not found any magic to solve a global trade slowdown. 

Still some of the latest numbers have shown improvement. These are the forward looking surveys like the Economic Watchers, consumer confidence, and Manufacturing PMI. There is a slowdown in the slowdown, the second derivative, which is causing all of the excitement in financial markets. This may not change the fact that any recovery will be slow, but turning point searchers are starting to feel that dollar will have to but to use.

Dollar yen has been more range-bound but the flows to higher yielding risky assets will continue and drive yen lower. 

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