Is Japan Moving Toward a Bearish Phase?
Bank of Japan’s stance
As we have seen earlier, the Bank of Japan (or BoJ) took immediate steps to recover the country’s economy in 2013, when the Japanese market (EWJ) (DXJ) entered a bearish phase. After taking charge in December 2012, Japan’s Prime Minister Shinzo Abe took steps to revive the economy. His main focus was to weaken the yen and increase the country’s exports, resulting in a mild recovery.
The Bank of Japan utilized quantitative easing (or QE) to boost the economy and lift the country from its deflationary situation. QE is a tool used by most of the central banks around the world to initiate a recovery from the 2008 financial crisis.
In the past year, the Bank of Japan made some changes in its quantitative easing program. It introduced the buying of exchange-traded funds that follow the JPX-Nikkei Index 400. Plus, the BoJ wants to raise Japanese bonds, which have an average maturity of seven to ten years.
The upcoming BoJ meeting
Investors expect further easing in the BoJ’s monetary policy in its next meeting, scheduled for January 28–29, 2016. In contrast, Deutsche Bank (DB) notes that if the Bank of Japan implements more easing, then it could ruin its credibility. Credit Suisse states that Japan is still 34% more expensive than its Asian peers.
Financial stocks Mitsubishi UFJ Financial Group (MTU), Sumitomo Mitsui Financial (SMFG), and Mizuho Financial Group (MFG) became more sensitive ahead of the monetary policy review.
In the final part of this series, we will analyze how crude oil prices affect the Japanese economy.
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