Nikkei Down 3.8 Percent after Abe Disappoints Market

The Nikkei closed at 13014.87—down 518 points or 3.8 percent hitting a fresh two month low. The yen gained strength against the dollar pushing below the 100 mark to 99.78. The yen was also stronger against the pound and the Australian dollar.

All eyes were on Japan Prime Minister Shinzo Abe as he delivered a speech Wednesday revealing what is now called the “third arrow” of his economic reform plan designed to revitalize the economy and pull it out of a decades-long period of deflation.

In the speech, he pledged to raise incomes by three percent annually over the next decade and to set up economic zones that would attract foreign investment. The electricity market would be fully liberalized and he wants to invest $300 billion into power related investments over the next 10 years, according to CNBC.

In April, the Bank of Japan set a target of achieving two percent inflation in less than two years. Analysts believe that wages will have to move higher in order to achieve that goal.

The speech sent the market tumbling. Investors were disappointed that Abe stopped short of bolder reforms. Instead, he made promises that Japan had heard in the past. Richard Jerram, chief economist at the Bank of Singapore told CNBC, "Every prime minister in the last 20 years has had an economic growth plan, the key is implementation. Either you make some progress in the next 6-12 months, or people realize it is just another bunch of hollow promises."

As stocks tumbled, the Japanese government went into damage control mode, according to Reuters. A top government spokesman said that he didn’t believe that Abe’s plan fell short of market expectations but that wasn’t enough to save what ended up being another disappointing day for the Nikkei.

Other Asian markets were down on the news. The KOSPI was down 1.52 percent, the Australian market shed 1.34 percent, and the Hang Seng index was down 0.97 percent. American markets are down fractionally in the early hours of the morning.

In other news, Reuters reports that Japan is planning to issue $3 billion of inflation-linked bonds in the fall. The likely plan is to sell $3 billion in October and another $3 billion in January.

Japan suspended the sale of these bonds, similar to TIPS in the United States, in 2008 when the financial crisis hit world markets causing prices their prices to plunge.