2013 was a good year for Japan’s Nikkei 225 stock index which saw it put on more than 50% of its value. Investors were inspired by the election of Shinzo Abe in December 2012, who came to power vowing to end nearly 20 years of deflation in the Japanese economy and reverse years of economic stagnation. This policy involves the Bank of Japan actively targeting an inflation rate of 2% and continuing with accommodative monetary policies. The bank of japan is continuing with its own asset purchase programme which sees more than $70 billion injected into the economy each month. “Abenomics” as the PM’s policies have been dubbed, have seen the Yen depreciate significantly against other major currencies since Abe came to power.
The Yen fell by 25% against the Euro over the course of 2013 and shed nearly 20% of its value against the US Dollar. Since the EU and America are major trading partners for Japanese exports, the decline of the Yen has helped with the competitiveness of Japanese imports in these markets. Japan is also a major trading partner with China and since the Yuan is in lock-step with the Greenback (it rose by 2.7% against the Dollar over the year; compared to a 5.5% rise for the Euro), so the Yen has devalued appreciably against the Chinese currency.
Over the first two trading sessions of the Year, the Nikkei has dipped from 16291 to 15814, a fall of 3%. Analysts believe that this is a downward adjustment for profit-taking. Speaking to the BBC, Richard Jerram, chief economist at the Bank of Singapore was bullish about the Nikkei over the course of 2014: "We know there is more to come from the Bank of Japan. The Yen is going to keep going down and as we saw last year, it's a fairly simple dynamic. It boosts the corporate sector, boosts profits and the stock market." In his opinion, the Nikkei 225 could end the year up by 15 to 20% over its current level.