The index dropped for the second time in recent days on Thursday. In the previous week also, Nikkei declined 7 percent in a single session. This was the biggest decline in Nikkei since the 2011 earthquake and nuclear disaster.
Reasons of Rise in Japan’s Nikkei
On Friday, the index surged after the release of the report, which showed that industrial production surged more than the expectations of the economists in April. The prices are declining in Japan, according to another government report, and the main consumer price measure was down 0.4 percent in April 2012.
However, the prices increased in comparison to the previous month. According to the Economists as Societe Generale the figures were “most encouraging” and “suggest that deflation has given way to inflation, at least for now.”
Japan’s Nikkei, still strong
The changes in fiscal and monetary policies brought in by Prime Minister Shinzo Abe and Central Bank Chief Haruhiko Kuroda has been largely welcomed by the investors.
Nikkei, which has been one of the best performing indexes this year, is still up by 32 percent since January and the index has surged 62 percent since May 2012. The currency yen has become weak after Shinzo Abe became Prime Minister and is down 30 percent against the dollar.
However, the same sign of growth is not yet reflecting in all segments of the economy. The wages are flat, and retail sales and industrial production indicators have also not performed very well.
Instability In Japan’s Equity Market:
According to some analysts, the stock market is in overbought region while others believe that the doubling of the monetary base by the Bank of Japan will play a vital role in transforming the decade old inflation, which is still continuing. This will not affect the massive bond market in the country and borrowing costs will come down.
The Nikkei declined sharply due to the concerns that the Federal Reserve may bring down its purchase of Asset. The other reason for this steep correction was the instability in the Japanese government bond markets, which have also affected the Equity markets.
Niall King, an analyst at CMC Markets, said that the instability in the Japanese equity market has been the main reason for the volatility, which the Asian market has been facing in the recent days.
The other indices of the other markets worldwide have not been affected much due to the decline in Nikkei. This reflects that the Nikkei fell due to worries over the country’s effort to increase economic growth.