After the earthquake, in 2011, resulting tsunami and Fukushima nuclear disaster, Japanese markets tumbled. On the first day of trading after the disaster, the Nikkei ended down 6.18 per cent at 9,620 points in a day of record share trading. The Bank of Japan (BoJ) said at the time it would support the economy by injecting ¥15tn (£114bn) into the banks. Since then, the economy has rebounded.
Now, two years on, the economy is slowly but steadily on the mend. Recent headlines have suggested a shift in sentiment for investing in Japan, largely due to Japan’s newest prime minister, Shinzo Abe.
Mr Abe, who assumed office in December 2012, is Japan’s sixth prime minister in five years. He was previously prime minister for one year from 2006–2007 and has been very vocal in pushing for the country’s economy to improve, encouraging the BoJ to do more. His plans which include greater government spending – dubbed ‘Abenomics’ – have been popular with analysts.
Popularity does not stop with Mr Abe. The BoJ’s new governor, Haruhiko Kuroda, has also been well regarded by commentators who say his fluency in English will help to argue his case with international banks.
Mr Kuroda took little time to get down to business, surprising markets at the start of April in announcing the size of the Bank’s latest stimulus package. In an attempt to spur the economy’s growth the BoJ said it would increase its purchase of government bonds by ¥50tn – £350bn – a year. This equates to almost 10 per cent of Japan’s annual gross domestic product (GDP).
The BoJ also intends to increase its purchases of longer-term government bonds as well as more risky assets such as exchange-traded funds (ETFs) and real estate investment trusts (Reits). Furthermore, with continued pressure from the government, Japan’s central bank doubled its inflation target to 2 per cent.
Lethargic growth
Mr Kuroda says the BoJ’s previous approach of incremental easing was not enough to pull Japan out of deflation and towards the target 2 per cent inflation in two years. He says this time will be different because the Bank has taken all the necessary steps to get back on track. Since the announcement at the start of the month, the Nikkei 225 has risen by 4.4 per cent. This can only be good news when falling markets have ultimately locked Japan into a long period of lethargic growth and recession.
