19th November 2014 - Japanese Markets Cool Off

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19th November 2014 - Japanese Markets Cool Off.

Nikkei 225 Index:

Nikkei 225          17,288.75 (-0.32%)

The Japanese economy and markets have been in the news lately after a string of stimulus announcements and the news that the world's 3rd largest economy is officially in recession.

Last week the Bank of Japan confirmed it would be increasing its stimulus efforts in 2015 by increasing its monthly budget from ¥60tn to ¥80tn. This news along with the increase in allocation of local stock for the state pension fund saw the local indexes rally to near 7 year highs.

Earlier this week, a Reuters poll indicated that the Japanese economy was in recession.

The news did not land well and since the beginning of this week we have seen volatility on the local indexes not seen for quite some time. The initial boom with the markets up over 8% was quickly corrected as more economic indicators were released and profit taking was the deal of the day.

In response to the countries dire situation Prime Minister Abe has cancelled the planned Sales Tax increase scheduled for October 2015 and has announced a surprise election to be held in December.

The view is that the Shinzo Abes Liberal Party will not have enough competition to put them out of control and that will afford them to continue the stimulus package, known as the 3 arrows to its conclusion.

With the Bank of Japan making no policy changes and its head publically saying he is not convinced that the delaying of the Sales tax is a sensible idea, what happens in Japan over the next few months is fairly predictable.

PM Abe will remain in power and will look to balance  out the lack of US money that was being injected into the system in an attempt to pull Japan out of deflation and the recession they are currently seeing.

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