The Nikkei 225 hits new highs

Japan’s stock market hit its highest value since 1996 after the re-election of Prime Minister Shinzo Abe. The ruling Liberal Democratic Party lead coalition retained its two thirds parliamentary majority thus encouraging markets that Mr Abe’s economic reforms would continue. The Nikkei 225 rose to 22819 by 1st December helped by the depreciation in ¥ and so boosting Japanese export activity. Global growth and rising wages within Japan have increased domestic spending.

Another term for Prime Minister Abe means that the Japanese government stimulus programme of structural reforms, QE and fiscal stimulus will continue. Abenomics, named after Mr Abe, started in 2012 and is now starting to show signs of success. Japanese GDP expanded by 0.3% in Q3 and 0.6% in Q2 which on an annualised basis is 2.6 %. Japan has enjoyed six consecutive quarters of growth. Japanese unemployment is at 2.8% the lowest in 20 years.

While the US Federal Reserve and the European Central Bank are gradually tightening monetary policy, the Bank of Japan will maintain a loose monetary position with zero interest rates and heavy bond asset purchases. These policies are aimed at weakening the ¥ to boost profits of exporting companies, while also making savings less attractive and equity investment more attractive.

Japanese companies have improved corporate governance, payed out higher dividends to investors and bought back shares in order to boosting stock values. These values remain reasonable and the outlook is good.

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