Turning Japanese (Part 2)

What is Japan trying to do?

On the face of it, end deflation, weaken the yen, and revitalize the economy. Abenomics is the fiscal and monetary policy package put together by Prime Minister Shinzo Abe and BOJ Governor Haruhiko Kuroda. It consists of monetary reflation, deficit spending, and labor market reforms. For years, Japan was regarded as the sick man of Asia. But if Abenomics can get their economy moving again, that won’t be the case anymore.

As stock prices shot up and the Yen fell, some investors looked at Japan’s potential GDP and thought the market could treble before reaching fair value. But trees don’t grow straight to heaven, and a stray word from the Prime Minister in mid-May broke the up-trend; now the market is down about 20% from its peak. Traditionally, a 20% decline constitutes a bear market. Is Abenomics dead?

Probably not. The market shot up so quickly that investors’ expectations were bound to be disappointed. A minister discussing his concern with Japan’s 240% debt-to-GDP ratio doesn’t constitute a divided cabinet. The Nikkei is still up 50% over the last seven months.

Japan has many options for dealing with its debt and other financial issues. If Abe and Kuroda can break the back of deflation, everyone will be better off.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2013-06-18T09:39:08+00:00 June 18th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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