Nikkei Within Breathing Distance of Bear Market Territory as Index Falls Below Key 13,000 Level
The Japanese Nikkei Index dropped below the key 13,000 level overnight as fears that the government's four-pronged stimulus program may not yield the results that were expected initially. The benchmark index dropped 0.79 percent overnight, closing just off of the lows of the day.
Financial stocks were notable laggards in the session as the group were the weakest of the 6 major industry groups in the index. Dai-Ichi Life, the nation's largest life insurer, declined 3.36 percent overnight. Energy stocks were also weak, dropping 1.72 percent.
Commercial banks were also weak overnight, as the group of banks declined 0.74 percent. Large banking giant Mizuho Financial shares declined 0.52 percent while investment banking giant Mitsubishi UFJ shares fell 1.21 percent.
Bear Market Near
The Nikkei Index has declined 19.06 percent from its high on May 22 of 15,942.60. The drop has occurred only over the last two weeks and comes after nearly doubling from its 52-week low of 8,328.02. Shares are now up 24 percent for the year since January 1 although at the high, the return for the year was well above 50 percent over five and a half months.
Should the Nikkei enter bear market territory, it could be a sign that the market got ahead of itself in expectations for the Bank of Japan, in tandem with the fiscal authorities led by Prime Minister Shinzo Abe, could pull the economy out of its multi-decade rut. Japan has seen deflation for over a decade now as the economy has stagnated since the collapse of the asset bubble in the early 1980's.
Economic Data to Drive Markets
As the entire market is reacting to the policy moves of the government, key economic data will be in focus over the next few days. Tonight, the leading indicators for Japan are due out and should show an uptick in activity across the country. Although leaders have hinted that policy could take time to flow through to the economy, markets have became anxious and want to see results sooner.
Next week, the Bank of Japan is set to release its interest rate and policy decisions. Although no change in policy is expected, Governor Hairuhiko Kuroda is expected to comment on the current market volatility and also the rise in interest rates around the country.
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