Japanese stocks and government bonds rose on Tuesday despite a credit reduction from Moody’s Investors Services on Monday.
Wednesday, December 3, 2014
Moody’s alluded to uncertainty surrounding Japan’s ability to lower its debt.
Investors apparently believed the credit rating is inconsequential for a market highly influenced by the central bank. The Bank of Japan continued its large-scale bond purchasing even after the rating downgrade.
The yield for the benchmark 10-yaer government bond – which moves in the opposite direction as price – fell from 0.430% on Monday to 0.415% on Tuesday. Additionally, the Nikkei Stock Average added 0.4% to reach its strongest closing mark in over seven years.
“This is very unusual,” Shuichi Ohsaki, a bond strategist at Bank of America Merrill Lynch, told The Wall Street Journal. “People buy [Japanese government bonds] even when their prices are high. They buy [the bonds] even when credit risks are perceived as greater.”
Japanese recession might not be so bad
According to a new survey of economists on Monday, Japan’s economy may have shrunk only 0.6% in the third quarter rather than the 1.6% originally thought, reported Bloomberg. This data would indicate that the current recession in Japan is not as sharp as economists initially thought and might mean the nation is poised to return to form sooner rather than later.
Capital spending by metals producers and smartphone-components makers unexpectedly jumped 5.5% in the third quarter, influencing the upwards revision. Combined with the strong performance of government bonds and the Nikkei index, analysts are optimistic for Japan’s recovery.
However, there is still some ground to make up. Prime Minister Shinzo Abe still plans on a sales tax increase in the future, though it was recently delayed in favor of supporting growth. The last tax increase in April may have been a catalyst for the economic doldrums in Japan over the last two quarters.
“Capital investment is gradually growing, with the level much higher than before the Abe government, but it’s just not that resilient yet,” Takeshi Minami, chief economist at Norinchukin Research Institute, told the Japan Times. “The public still doesn’t rate ‘Abenomics’ positively because most people aren’t better off as prices are rising faster than wages.”
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