Japan’s stock market recovered from yesterday’s rout – the biggest single-day loss this year – as investors expected heightened stimulus measures.
Wednesday, November 19, 2014
On Monday, Japan announced it had fallen into recession after the gross domestic product shrunk for the second consecutive quarter. But economists are hopeful that new stimulus will assist the nation’s recovery.
The Nikkei Stock Average lost 3.0% on Monday and regained 2.2% this morning.
Prime Minister to fight economic stagnation
Japan’s Prime Minister Shinzo Abe is expected to delay a sale tax increase, according to the news source. Gross domestic product contracted at a 1.6% annual rate in the third quarter after falling 7.3% in the second quarter. Many economists blamed a sales tax increase in April for the economic decline.
Abe will also hold a general election in December as way of reauthorizing his call to stem deflation – another factor that has dragged on Japan’s economy. Declining wages and low demand are other negative trends.
While the market responded favorably to Abe’s stimulus plan, the Japanese yen declined, according to Bloomberg. The currency has fallen 7.3% in the last month – worst among the 10 developed-market peers in the Bloomberg Correlation-Weighted Indexes.
“We have good sentiment in Japan for the stock market because of the tax hike taking place later, and on the other hand you have the political uncertainty that is bad for the yen,” Soeren Hettler, a senior foreign exchange analyst at DZ Bank AG in Frankfurt told Bloomberg.
Recovery doesn’t spread to China
As investors listened to Abe’s plan of action, European Central Bank President Mario Draghi expressed a similar embrace of stimulus, The Wall Street Journal reported. The eurozone has undergone recent economic weakness as well and the ECB established it could begin an asset-purchasing program to boost inflation.
Such easy-money policies from Europe and Japan usually boost liquidity across the region. But in China, the impact was minimal. The Hang Seng Index fell 1.1% and the Shanghai Composite Index declined 0.7%.
Hong Kong and Shanghai opened a stock link on Monday that gave mainland China and foreign investors better access to the each other’s assets. But on the trade avenue’s second day, just 38% of the quota for Shanghai stocks was used and there was almost no buying from China into Hong Kong.
Additionally, new home prices in China dropped in October for the sixth consecutive month. Combined with the disappointing trade link performance, investors were wary of the Chinese market.
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