When Prime Minister Shinzo Abe launched his three-pronged program to revive Japan’s stagnant, deflationary economy three years ago, the stock market cheered every step along the way.
Not any more.
The “third arrow” of Abenomics — reforms to make the economy more productive — is barely a work in progress, but Abe got straight to work on the first two, fiscal expansion and monetary stimulus, with the enthusiastic support of a new governor at the Bank of Japan (BOJ), Haruhiko Kuroda.
In the first year of the program, the Nikkei index .N225 jumped nearly 60 percent, drawing in a net 15 trillion yen ($128 billion) of foreign cash. Enthusiasm for Kuroda’s bold stimulus, in particular, was strong, with each of his first two money-printing announcements prompting a 7 percent weekly surge.
His decision last week to introduce negative interest rates was equally bold, and quite unexpected, but as Abe’s arrows have sailed wide of their target, investors have sat on their hands.
“The market’s reaction is getting duller day by day. The negative interest rates boosted the market only for two days,” said Norihiro Fujito, senior investment analyst at Mitsubishi UFJ Morgan Stanley Securities, and trading data shows even that was down to short-term “gamblers”, he added.
A week later, even those gains are gone, as foreign investors withdrew a net 207 billion yen from the market, taking their total for 2016 to more than 1 trillion yen. U.S.-based Japanese stock funds also saw an outflow in the week ended Feb 3.
Though the Nikkei is up about 36 percent since Kuroda was appointed in March 2013, the yen has weakened from 95 to nearly 117 to the dollar over that period, so in dollar terms it is up only 10 percent, less than half the rise seen on the U.S. S&P 500 index .SPX. Read more