Strengthening Yen stymies growth for Japan

April 4, 2016

The stock market in Japan has continued to struggle, currently down over 22% from its peak nine months ago. Many investors have become frustrated with the slower than anticipated progress being made by “Abenomics”. However, many of the problems are culturally embedded into Japan’s population and may take a generation to change. In the shorter term, Japanese companies have been battling a strengthening Yen. Given the exporter skewed market in Japan, a strong Yen has a significant impact on the bottom line profitability of many large multinationals. The currency has been strengthening on the back of market volatility and investors fleeing to it as a perceived safe haven. This has put greater pressure on the Bank of Japan to further weaken the currency, expand quantitative easing and make further cuts to the interest rate. All of these actions would provide support for companies’ share prices.


In Europe and the US it has been another quiet week for equities. Friday saw the announcement of the US non-farm payrolls, showing that 215,000 were added in March. While this is a little less that February’s 242,000 figure, it indicates that there is still strong momentum in the US jobs market and market volatility has not damaged employers desire to take on workers. A strong jobs market will underlie a decision by the Federal Reserve to increase interest rates, especially if a tighter jobs market leads to accelerating inflation. Many economists and the market are now putting a high probability for another rate rise in June, giving scope for more by the end of the year. However, after the sharp change of expectations that was seen during the first quarter the current path could easily be diverted.

Elsewhere, Saudi Arabia has announced that it is looking to create a $2tn development plan to help manoeuvre the economy away from its dependence on oil. This is another brainchild of the Deputy Crown Prince of Saudi Arabia, Mohammed bin Salman. While such a plan has been needed for a long time, its implementation will be difficult in what is still a heavily conservative society which is dependent on subsidies and handouts from the government. However, a willingness from the leadership to want to implement such a policy perhaps gives an indication that the Saudis have come to the conclusion that the age of oil will not last forever.

Index Open Close Change % Change
FTSE 100 6106 6146 40 0.66%
S&P 500 2035 2072 37 1.82%
Dax 9851 9794 -57 -0.58%
Cac 40 4329 4322 -7 -0.16%
Nikkei 225 17002 16164 -838 -4.93%
UK 10 Year Gilt Yield 1.428 1.403 -0.025 -1.75%

The UK trade balance will be announced on Friday. The UK has been struggling with a historically wide trade and current account deficit and Friday’s announcement will be a good opportunity to see if a weaker pound has gone any way to narrowing it. US jobless claims are announced on Thursday.

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