The Japanese government shrugged off stock market gyrations yesterday, saying a raft of reforms including tax breaks for firms wanting to invest would boost the economy.
As the Nikkei 225 began another precipitous drop that saw it close the day 6.35 percent lower than it started, Japanese Chief Cabinet Secretary Yoshihide Suga said the world’s third-largest economy remained on a path to recovery.
“Our nation’s economy is steadily picking up,” he told a briefing in the morning.
“The real economy and leading indicators are improving. We want to continue to manage the economy with confidence,” he said.
The government of Japanese Prime Minister Shinzo Abe will today vote on the so-called “third arrow” of his program of growth and reforms, in a scheme dubbed “Abenomics.”
The Cabinet will officially approve the measures today, as the government prepares for an important upper house election in the middle of next month.
Some analysts have criticized the growth policies as lacking details, a viewpoint some say is borne-out by the wild fluctuations on the Tokyo Stock Exchange in recent weeks, as a fast-running bull market has switched to a bear.
However, participants say worries over a quick end to the huge monetary easing program in the US is the main driver, pushing the yen higher as players sell yen and seek safety in the currency.
Tokyo’s Nikkei crumbled, losing 6.35 percent, or 843.94 points, to 12,445.38 as dealers were spooked by a slumping US dollar. The index has lost 20 percent since hitting its peak last month, putting it in a bear market.
“There is no clear downside target [for the Nikkei] unless there is more clarity of the Fed’s policy,” said Shigeo Sugawara, senior investment manager at Sompo Japan Nipponkoa Asset Management.
“Depending on the comments from the Fed, the direction may become clearer,” Sugawara told Dow Jones Newswires.
In Tokyo forex business the US dollar was at ￥94.00 — lows last seen in early April when the Bank of Japan unleashed its massive spending plan to kickstart the economy. That compared with ￥95.88 in New York late on Wednesday and the high ￥98 range in Tokyo at the start of the week.
The greenback has dived around 9 percent since its spike late last month.
“The Nikkei falls because the dollar/yen falls, then the dollar/yen falls further because the Nikkei has fallen — markets are in this vicious circle,” said Atsushi Hirano, head of FX sales Japan at Royal Bank of Scotland.
The euro was at US$1.3385 compared with US$1.3335 in New York, while it bought ￥125.81, from ￥127.86.
On Wall Street, the Dow fell 0.84 percent, the S&P 500 also slid 0.84 percent and the NASDAQ was down 1.06 percent.
“We have seen such wild fluctuations lately that few investors want to press on with buying,” Daiwa Securities senior strategist Hirokazu Kabeya said.
“It’s a kind of a chicken-and-egg situation — volatile markets keep buyers away and the absence of buyers leads to market volatility. We are trapped in a negative spiral right now,” he said.