Japan’s Prime Minister Shinzo Abe started his term with strong words and putting the Central Bank on the spot. His tactics have in the short term reached his goals. Devalue the yen to make exporters more competitive and set a 2% inflation target which will boost consumption and growth. The stock market has been the main beneficiary of those major moves as the Nikkei continues to post daily highs.
Japan’s stock market has been on a tear, adding more than 7% over the past month as investors cheer looser monetary policy and the buckets of fiscal stimulus being pumped into the country’s economy, which together have depressed the yen.
Last week, the Nikkei rose to its highest level in more than four years, riding a wave of optimism that has coincided with Abe’s rising political fortunes. While the rally may yet have a little further to run, stocks have probably seen most of the gains they can expect from the currency move.
A former prime minister who resigned his post only to ride a wave of popular dissatisfaction back into office, Abe has pursued a controversial set of policies designed to revive Japan’s faltering economy and end decades of stagnation.
Japan is in the midst of a mild recession, and Abe has deployed supercharged rhetoric in an attempt to steer the country’s central bank into aggressive easing. The bank has responded to the pressure, pledging to make “open-ended” purchases of government bonds and raising its inflation target to 2% from 1%.
Abe’s government has also put in place an $117 billion fiscal stimulus package that will increase spending on public works, disaster recovery and provide aid to smaller businesses.
The actions have precipitated a sharp fall in the value of the yen, which has weakened by nearly 20% against the U.S. dollar since the beginning of October.
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