Our view on Japan for December


Japanese markets performed strongly during December with the Nikkei 225 index up 4.55% and the broad Topix index up 2.38% over the same period. The election of Donald Trump provided support to the Japanese economy with the yen weakening against the US dollar which will help increase Japanese exports. Optimism at Japanese companies has improved for the first time in 18 months following Trump’s election. The Bank of Japan’s (BoJ) closely watched the Tankan index (Business Short-Term Economic Sentiment Survey) for large manufacturers rose from +6 to +10 in December, while the index for all companies rose from +5 to +7.

Confidence in ‘Abenomics’ is continuing to grow with the BoJ leaving monetary policy unchanged having turned optimistic on the economy’s growth prospects in 2017. They will keep overnight interest rates at -0.1%, capping 10 year bond yields at close to zero. The central bank also will continue its purchase of government bonds at a rate of ¥80tn a year, equities at ¥6tn, and corporate bonds at ¥6tn. Prime Minister Shinzo Abe ended 2016 with stronger support, further strengthened by seeking progress on a territorial dispute with Russia and becoming the first Japanese prime minister to visit Pearl Harbour in decades – a popular move with the Japanese population. 

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