The Nikkei 255 index reached a six-week low on Monday after falling 3.7% overnight. The recent drop has gotten investors worried about the Japanese market that has only recently surpassed the index level of the Dow Jones Industrial Average.
Most attribute the decline to nervousness surrounding Japanese Prime Minister Shinzo Abe’s recent economic policies. In recent months, Abe has spearheaded a movement to double Japan’s money supply, increase government spending, and expand public investment – among other tactics – in order to spark reflation and end the stagnant environment the Japanese economy has suffered for the past two decades. The so-coined Abenomics has helped rally the markets 80% and caused the yen to fall 30% against the U.S. dollar since mid-November.
Last month was a different story. After reaching a peak in May, the surge in Japanese stocks has begun to reverse. As of Monday, the Nikkei index has dropped 17% from its peak. This sort of decline is due to the fear of a global economic slowdown paired with the uncertainty that Abenomics can continue to aid the Japanese economy.
Despite the recent drop, Abe has stated that he remains confident in his economic policies. On Wednesday he will give his third and final speech on Japan’s planned economic measures. We will cover this in our next post.