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Japanese equity Market Returns        Q4            LTM

Nikkei 225                                             - 16.8%      - 10.3%

TOPIX                                                     - 17.6%      - 16.0%

MSCI Japan Smallcap Index               - 17.8%       - 18.2%


  • BoJ monetary policy remains unchanged
  • Consumption tax hike confirmed
  • Yen strengthens as safe havens rally
  • Japanese equities fall as global growth fears reign

Bank of Japan monetary policy remains unchanged. Bank Governor Kuroda signalled that their ultra-loose monetary policy would continue, given they are still a long way off achieving their target of 2% inflation. They are still running negative interest rates where, peculiarly, banks have to pay for holding cash on deposit. They are also continuing their program of quantitative easing, buying both bonds and equities in the market to keep financing conditions easy, targeting a yield on their 10-year government bonds, of 0%.

Consumption tax hike confirmed by Prime Minister Abe. Whilst the proposed change is only an increase from 8% to 10%, it has been delayed twice already due to fears over its impact on economic growth. Abe increased it in 2014 from 5%, and he says that an increased tax take is required to help support families with young children, as Japan’s population ages. He also confirmed that he would try to limit the impact on households by easing the burden of buying big ticket items, such as houses and cars. The increase is not due to take place until October 2019 so market reaction was muted.

Yen strengthens as investors find refuge in safe haven assets. In periods of market stress investors seek so-called “safe haven” assets to protect themselves from capital losses. The Japanese Yen has historically been seen as a safe haven and this period was no exception, as we saw global equity markets come under pressure. During the quarter, the Yen strengthened by nearly 6% relative to the Pound, with most off the move happening in December – during the worst of the equity market falls. Ironically, a strong currency has a detrimental effect on Japan’s stock market because it contains so many large multinational companies. The stronger the Yen becomes, the lower the value of these companies’ overseas earnings (in Yen).

Japanese equities fall as global growth fears reign. The stock market here is one of the largest in the world by market value, and contains many multinational corporates. Hence, the losses in Japanese equities broadly reflects the deterioration in global sentiment that we saw during the period. Japanese autos made headlines as Carlos Ghosn, chairman of Nissan and Mitsubishi, and chairman and chief executive of Renault was arrested on suspicion of financial misconduct.

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” - Paul Samuelson