Japanese Equities

CHAPTER 2Policy Impact

It is no surprise that policy decisions affect the equity market. Tax cuts and fiscal stimuluses are designed to keep the economy afloat and thus give support to the equity market. Likewise, monetary policies, depending on how they are used, work either to lift up or to slow down the equity market.

Looking back at history, the creation and demise of the '80s bubble, the “lost 20 years” since the 1990s, the Koizumi bull market of 2005, and the equity market since the introduction of “Abenomics” were all orchestrated in large part by policy decisions. Monetarists believe that the Bank of Japan (BoJ) monetary policies are to blame for the lost 20 years, while traditionalists believe that the blame should be placed on the lack of structural reform in Japan (such as needed pro‐growth deregulation of corporate laws and change in taxation codes, change in the immigration policy, etc.). Either way, policy decisions are believed to be the main culprit.

“Policy decisions” discussed in this chapter are not limited to those in Japan. The Japanese equity market reacts sensitively to global economic conditions and is often swayed not only by American policy decisions but also by those of the EU or China. Decisions made by the Federal Reserve Board (the Fed), results of US presidential elections, actions by the European Central Bank (the ECB), and Brexit, just to name a few, have exerted considerable force on the Japanese equity market and will likely continue to do ...