Japan is on a tear


The Nikkei stock market index is up 25% year to date, in USD terms. What is striking is that it is up 15% since the start of September. One must wonder what is causing this. Some of this excitement is sure to be from Prime Minister Shinzo Abe’s snap election victory, which is seen as a positive for the country, at least in terms of defense spending relating to North Korea. No matter, according to a chart in The Wall Street Journal Daily Shot, “…technical indicators suggest that the market is massively overbought.”

nikkei rs.png

My first impression is derived from Monetary Policy and risk-asset inflation. The Bank of Japan is buying bonds as well as Exchange Traded Products. Yes, ETFs. While we thought our measures were extreme, the BOJ is propping up it’s fixed-income and equity markets. While the US is raising short-term rates and letting it’s balance sheet mature, the ECB is slowing the rate of it’s own purchases.  Add to that the Bank of England’s first interst rate increase in 10 years and Japan looks like the odd one out. This Bloomberg article echoes my thoughts: “Concerns include the risk that the central bank could end up owning such large amounts of the free-floating shares of some listed companies in the Nikkei-225 Stock Average that it could seriously distort the market.”



Sources: https://www.bloomberg.com/news/articles/2017-07-18/boj-s-etf-buying-is-said-to-raise-concern-among-some-officials , WSJ Daily Shot