Without Improvement in Domestic Economy Nikkei to Act As One Big Exporter

Without Improvement in Domestic Economy Nikkei to Act As One Big Exporter

13 April 2016, 08:50
Roberto Jacobs
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Without Improvement in Domestic Economy Nikkei to Act As One Big Exporter

Nikkei drops, when Yen rises and rises when Yen drops, due to the popular notion in the market that weaker Yen makes Japanese exports more competitive in world market, hence that should be positive for Nikkei stocks. Market is treating Nikkei 225 as one large exporting stock, which benefits from weaker Yen.

However in reality that is hardly the case. Nikkei comprises of 225 stocks of Japan from 35 different industries and among which corporations from Retail, Fishery, Railway/Bus, Securities, Insurance, Air Transport, Warehousing, Banking, Mining and Real Estate are largely focused on domestic economy. So, every time Yen weakens, it is the exporters who provide support to Nikkei, while domestic economy continued to struggle.

Biggest challenge so far for the government and the central bank has been charging up the consumers. Newly introduced government‘s increased sales tax made them so subdued, Bank of Japan’s (BOJ) massive stimulus and lower longer term interest rates hardly having an impact.

According to latest figures –

  • Japanese consumer confidence hovering at 41.7, which is deep in pessimism. Last time the index was optimist, was back a decade ago.
  • Retail sales, which is a vital gauge of consumer spending was up just 0.5% y/y in February, while last year March, it was down -9.7%. In past four months to February, it has been in negative thrice.
  • For the past one year, household spending has been positive only thrice, while it was down in nine other months. Throughout last 12 months to February decline averaged -1.5% y/y in every month.

As long as domestic economy remains in doldrums, much isn’t expected to change in Nikkei. It is only when domestic demand improves, Nikkei will loosen up its correlation with Yen.

Nikkei 225 is currently trading at 16360, up 1.9%, while Yen is down 0.2% against Dollar. Trading at 108.9.

The material has been provided by InstaForex Company - www.instaforex.com



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