BOJ Moves Propel Nikkei Above 3,000

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The country is just over a day past the Bank of Japan’s astonishing and aggressive steps of monetary easing, and, so far, the financial reactions are exactly what the bank had predicted.

© Mike Hodges

The Nikkei closed up 1.6% at 12,833.64, but not before exceeding 13,000 in intra-day trading, reaching its highest level in nearly five years at 13,225.62.  The yen retracted against the dollar as well, just as anticipated, dropping to a three-and-a-half year low of 97.21.

We know now that, at least in the very short term, the change in the BOJ fiscal policy is heading in the direction they were hoping for.

Ken Hirano, a market analyst with Tachibana Securities observed that “Foreign investors now have no choice but to buy Japanese stocks.  Europe remains mired in debt and employment problems while U.S. shares are looking very pricey.  Japan is the most undervalued market in the world, offering the best chance for equity pricing appreciation.”

Meanwhile Martin Schulz of the Fujitsu Research Institute noted that “The big story, and the lasting story will be the exporters.  A weaker yen helps the exporters to earn money with Japanese technology in Asian markets in particular.”

Of course there are nay-sayers, not the least of which is George Soros, the billionaire investor who is powerful enough and known to make his own market-influencing moves.  He thinks that “What Japan is doing is actually quite dangerous because they are doing it after 25 years of just simply accumulating deficits and not getting the economy going.  If the yen starts to fall, which it has done, and people in Japan realize that it is liable to continue and want to put their money abroad, the fall may become an avalanche.”

Despite Soros’ skepticism, the Nikkei has increase by nearly 50% since 14 November 2013.  Share values on the Nikkei we at 1.1 times book value at that date.  They are now at 1.6 times.

The impact of the BOJ announcement and swift implementation of its plan has already affected the country’s major lenders and developers.  Shares of Mitsubishi UFJ Financial Group  and Sumitomo Mitsui Financial shares, the nations two largest lenders, were up by 5% and 4.8%, respectively.  Japan’s largest developer, Mitsui Fudosan climbed 13% to 3,310 on the day.

This much we know for sure.  The jubilation is in response to reality.  The  skepticism in response to speculation.  The question is not if Japan is doing the right thing.  It is if the right thing is sustainable.  The key is in the measure of the commitment of the bank to “do whatever it takes.”  Taken at face value, that does not apply simply to the immediate measures.  It applies just as much to the what the bank will do if things start to turn south.  Given the decisive action that the bank has taken since its change of administration, their is no reason that it will not continue to move decisively to prevent any predictable or unintended adverse consequences.

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