China set to reach number 1 spot in world economies

Japan says it is “happy for all of Asia” that China is on course to replace the U.S. as the globes top economy.

Even with encouraging growth of nearly 4 percent last year, Japan has finally relinquished their forty year hold on the title of second largest world economy, as China stormed past them on their relentless march toward the U.S. and the top of the pack.

Japans government welcomed the news saying it was a boost for the region and that the figures raised hope for some major recovery in their export trade.

Indeed China, the world’s biggest population, is a huge market for Japan and news of their booming economy could well be more important than a higher place on the economic pecking order.

“It’s definitely not about a meaningless economic ranking,” said Kaoru Yosano, Japans economics minister, “We welcome the prosperity of our important neighbours. Any figures which hint at development for own population, and those in the region, is good news as far as we are concerned. We are happy for all of Asia”

All this is a far cry from the situation in the 80’s when Japans ever increasing economy brought some admiration but mostly fear from their neighbours. Japan hit rocky waters though, as the property boom subsided and the country settled into a period of muted growth in their worst decade, the 90’s.

Meanwhile the transformation that has taken place in China is startling to say the least. From understated, poverty ridden, communist state to global economic kingpin which is now targeting the U.S. to become the world’s number 1, which may happen as soon as the coming decade.

China also hopes to improve its GDP per head. With rising incomes and the tourism sector expanding at an exponential rate the signs are positive.

“When you look at the sheer scale of Chinas economy, it looks set to totally eclipse any other nation very soon,” said James Coleman, Managing Director and co-head of Portfolio Trading at Softbank CIBC International, “the country still has a way to go when it comes to raising the standard of living across the population spectrum however,” he added.

U.S. displeased with Japan currency intervention

In an effort to halt yen increases, Japan has begun large scale monetary easing for the first time in six years, drawing staunch objections from prominent U.S. senators.

And Japan may not be finished after their 1 trillion yen sell off, as the country’s finance minister promised “there could be further action very soon if the yen keeps rising”.

This is just the latest large scale Asian state move into the currency markets as China and Korea have also dabbled in weakening their own currency.

Japans action resulted in a 2.5 yen movement versus the greenback and the nation’s stock exchange index soared nearly 3 percent to 9,521.

Tony Harris, Senior Vice President of Equity Trading at Softbank CIBC International says rather than be intimidated by noises coming from the U.S. government, Japan should escalate their intervention. “It’s time for them to go in with all they’ve got. If they drip feed the intervention the effect will be diluted,” he said.

It could be argued that Japans intervention is targeting a weaker yen; therefore the action they are taking is for the greater good of the world economy. Switzerland carried out similar intervention this year to prevent en mass movement of euro zone funds over to the franc.

Mr Harris also noted that the actions, although drawing scathing remarks from the U.S., will be tolerated now but Japan may not enjoy this goodwill from major economies in the near future.

“A year down the road some of the big economic players might start to take action themselves to stem the carefree way some Asian economies are currently manipulating their own currency’s.”

China and Japans economies are intimately linked and many economists think a recent Chinese buy up of Japanese debt last June might be influencing Japans decision to ease the yen.

The move, which injects a significant amount of liquidity into world finances, will send a ripple effect through the global economy and could have far reaching consequences.

Data shows slump in German 2009 economy

Slide in export figures and lack of investment result in shrinking of German economy in 2009.

  
A recent report by the Federal Statistics Office showed that this is the worst period for the economy since the war, and the first time shrinkage has occurred in nearly seven years.

The global financial crisis hit Europe’s biggest economy hardest and the country only managed to claw itself out of recession in April of 2009.

The worst post WW2 performance to date was a nearly 1 percent drop in West Germany's GDP in 1975. A 0.8 percent slide in 1993 was the worst since German reunification.

German economic authorities have forecast a 1.3 percent gain this year, however, recent data suggests it could raise the prediction to 1.6 percent.

Financial experts remained positive regarding the nation’s future economic development.

“The poor performance observed in 2009 will quickly be consigned to the pages of history. We are looking forward to a spirited recovery for Germany’s economy going forward,” said James Coleman, Managing Director and co-head of Portfolio Trading at Softbank CIBC International in a phone interview.

“Germany will no doubt rise again and be the focal point for the euro zone economy. The country has always been the driving force for growth on the continent, I doubt one bad year will change that situation,” Coleman added.