Japanese stocks recovered on Thursday, rising in lockstep with Wall Street after U.S. President Donald Trump backed a Democrat-endorsed debt deal that would keep the government open until the end of the year.
The benchmark Nikkei 225 Index rose 0.2%, stemming a three-day slide that dragged the benchmark to four-month lows. The Tokyo Stock Exchange Index (TOPIX) also advanced 0.4% in Thursday’s session.
The Nikkei has vastly underperformed its global peers this year even as the Japanese economy shows signs of progress. Japan is currently enjoying its longest streak of uninterrupted growth in over a decade. The economy expanded 4% annually in the second quarter, the fastest in more than two years and far outpacing forecasts.
The Bank of Japan (BOJ) isn’t letting faster growth alter its plans. Central bank officials have kept their hands off monetary policy since last September when they decided to target Japan’s yield curve. They recently raised their outlook on GDP, but pushed back their timetable for achieving 2% inflation for the sixth time.
Central bankers are expected to remain on the sidelines for the foreseeable future to shore up inflation and ensure a steady recovery. This may eventually boost support for Japanese stocks on assurance of continued liquidity.
The decline in stock prices this year has run parallel with a rising Japanese yen. The dollar-yen exchange rate referenced by the international forex market has declined more than 7% this year or reach its lowest level since the U.S. presidential election back in November. The yen’s gains have been driven by renewed haven buying and a pervasively weak U.S. dollar.
Reuters (13 August 2017). “Japan reports second-quarter GDP” CNBC.
Leika Kihara and Tetsushi Kajimoto (19 July 2017). “BOJ pushes back inflation target for sixth time, keeps policy steady.” Reuters.