In­vestors sour on Abe­nomics as global gloom deep­ens

The Pak Banker - - MARKETS/SPORTS -

Re­newed tur­moil in global mar­kets is be­gin­ning to erode in­vestor con­fi­dence in Ja­panese Prime Min­is­ter Shinzo Abe's pledge to re­vi­tal­ize the econ­omy through his mas­sive 'Abe­nomics' stim­u­lus pro­gram. Doubts over the ef­fi­cacy of Abe's cock­tail of mon­e­tary eas­ing, fis­cal stim­u­lus and struc­tural re­forms have been grow­ing for sev­eral months as the world's third­largest econ­omy fails to mo­tor on and in­fla­tion re­mains a long way off the Bank of Ja­pan's 2 per­cent goal.

Those doubts have height­ened in the past few weeks as the freefall in oil prices and con­cerns about China's slow­ing econ­omy and its per­ceived pol­icy mis­steps sent global fi­nan­cial mar­kets into a tail spin at the start of the year. "The per­cep­tion on Abe­nomics is chang­ing," said To­moichiro Kub­ota, se­nior mar­ket an­a­lyst at Mat­sui Se­cu­ri­ties. "It has been boost­ing share prices es­sen­tially by work­ing on ex­pec­ta­tions. But af­ter were just ex­pec­ta­tions."

Spec­u­la­tors, who were firm be­liev­ers of a weaker yen un­der Abe, be­came net buy­ers of the yen 1097741NNET in the past cou­ple of weeks, help­ing to drive the Ja­panese unit to one-year high of 115.97 to the dol­lar JPY= ear­lier this week. In­fla­tion-linked JGBs are pric­ing the low­est in­fla­tion ex­pec­ta­tions JP10YBEI JBTC since the bonds were re-in­tro­duced in 2013.

It stood at 0.55 per­cent, below its 2014 peak around 1.4 per­cent, and some dis­tance from the BOJ's in­fla­tion tar­get of 2.0 per­cent. As the global out­look dark­ened and growth at home slowed to an anaemic pace, Ja­panese shares wiped out all the gains since the BOJ ex­panded its stim­u­lus in Oc­to­ber 2014. Ear­lier in the week, the Nikkei . N225 fell more than 20 per­cent - widely seen as a yard­stick for a bear mar­ket - from a peak hit in June last year.

all ex­pec­ta­tions

Al­though the Nikkei re­couped some losses on Fri­day, un­sta­ble stock mar­kets put at risk voter sup­port for Abe­nomics given a rally in Ja­panese shares .N225 to an al­most two-decade high last year is seen as one of his ma­jor achieve­ments.

While Ja­pan's eco­nomic ills are partly a con­se­quence of global head­winds, in­clud­ing the de­fla­tion­ary im­pact of low oil and slack­ing global de­mand for Ja­panese ex­ports, in­vestors are start­ing to ques­tion if Abe­nomics could put growth and in­fla­tion on a sus­tain­able foot­ing.

The ab­sence of steady growth and con­sumer prices over the last three years have tem­pered in­vestors' hopes that Abe's strat­egy could spur a re­vival of eco­nomic for­tunes. Tellingly, shares of bro­ker­ages .ISECU.T and prop­erty firms .IRLTY.T - for­merly dar­lings of Abe's re­fla­tion poli­cies - have re­turned to lev­els when BOJ Gov­er­nor Haruhiko Kuroda set in mo­tion a burst of mas­sive stim­u­lus in April 2013.

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