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Japan Stock Market Surges Despite Bad Economic Data

A shopper walks past a clothing shop display on a shopping street in Tokyo Monday, Feb. 15, 2016.

Stock prices in Tokyo rallied for a spectacular recovery Monday despite the release of worse-than-expected data showing the Japanese economy further shrinking.

The benchmark Nikkei was up more than 1,000 points - a gain of nearly 7.2 percent at the close of Monday trading, following steep losses the previous week.

“I think it's probably a function of rising hopes the Bank of Japan will move sooner rather than later to introduce new stimulus measures,” said Tobias Harris, a political risk analyst at the Teneo Intelligence consultancy.

The broader TOPIX gained 8.8 percent Monday, its best day in more than seven years after a 13 percent plunge last week.

Many investors considered that downturn a massive oversell and also brushed off figures released in the morning showing the economy shrank at an annualized rate of 1.4 percent in the fourth quarter of last year. That was worse than the forecasted 1.2 percent.

Adjusting the data for inflation, the Japanese economy grew just 0.4 percent in 2015.

Japan’s government on Monday continued to stick to the stance that there is no cause for alarm despite concerns the latest data from Tokyo adds to fears of a global economic slowdown.

There is “continued improvement for employment and income” leading the government to “expect the economy to recover gradually,” Chief Cabinet Secretary Yoshihide Suga told reporters.

Central bank watch

It is widely expected the central bank, which on Jan. 29 took the unprecedented move lowering a key interest rate below zero, will soon call an emergency meeting to announce new policies.

“I'm guessing that it won't include another interest rate cut, at least not yet, given the uncertain impact the first one had on the financial sector and the fact that the effects of the policy on the real economy still aren't entirely clear,” Harris told VOA.

Prime Minister Shinzo Abe has now seen practically all economic gains vanish since he came into office more than three years ago and introduced his “Abenomics” stimulus policies.

While the fresh GDP data is not viewed as the death knell for Abe’s economic program, it does “show that Abenomics's primary goals are receding into the distance,” according to Harris, a former staff member in the office of a Japanese lawmaker.

Japan has hoped that deflation could be overcome with sustainable growth to prompt rising incomes, consumption and investment.

Private consumption, however, has dropped in three of the last five quarters.

“Incomes have just not risen by enough for enough households to see that kind of growth they want,” Harris noted. “For all the talk of domestic-led growth, Abenomics seems to have just reinforced - via the weak yen - Japan's dependence on export-led growth.”

Rising yen

The Japanese currency, however, has resisted going in the desired direction lately, strengthening to highs not seen since 2014.

The dollar was trading around 114 yen late Monday afternoon in Tokyo.

Japanese officials have openly hinted of a coordinated effort through the G7 and G20 to stabilize currencies.

“I wonder whether there's any policy available that will reverse the appreciation we've already seen in light of China's weakness and the effects it's having on the world economy,” Harris said. “It's somewhat ironic that the fate of Abenomics seems to rest in the hands of Beijing.”