Japanese Stock Market At 6 Month High

The Nikkei has risen to heights not seen since May as traders draw confidence from comments made by the Bank of Japan (BOJ) which indicate that their asset purchase programme will remain in place for the time being. The motivation behind the BOJ asset purchase scheme is identical to that of the Federal Reserve; to keep long-term borrowing costs low and to provide “cheap” money to encourage business expansion.

The BOJ declared that the Japanese economy was “recovering moderately”, but stated that, unlike the Federal Reserve, it had no plans to scale back its asset purchase programme. The scheme sees $700 billion of asset purchases per annum (compared to $1.02 trillion in the USA). On the back of the announcement, the Nikkei closed at 15366, its best closing position since May. The asset purchase scheme started in April and had been called for by Japanese PM Shinzo Abe as a means to kick-start the sluggish Japanese economy.

Japanese exports stand at a 3-year high after a year-on-year rise of 18.6% for October, buoyed by a strong demand for cars (up by 31.3% year-on-year). They have been helped by the relative weakness of the Yen which has devalued by roughly a quarter against the Dollar over the last year. Exports to the USA and Europe rose by 5.3 and % respectively. On the flip-side of the coin, raw material costs (priced in Dollars) have risen and the country’s trade deficit has doubled over the same period.

The BOJ summarised the current situation in a statement: "Regarding risks, there remains a high degree of uncertainty concerning Japan's economy, including prospects for the European debt problem, developments in the emerging and commodity exporting economies, and the pace of recovery in the US”.

As we noted earlier in the week, the pace of expansion of the Japanese economy has slowed between the second and third quarter of the year, easing from 0.9% in Q2 to 0.5% in Q3. Japan has the highest debt to GDP ratio of any leading economy at 214% of GDP.