Japan’s shares have climbed past the 15,000 mark for the first time since January 2008, as the yen continues to weaken – boosting the earnings potential for exporters.
The benchmark Nikkei index rose 2% to 15,096, with carmaker Toyota and consumer electronics giant Sony leading the gains.
The Nikkei is up 46% since the start of 2013.
Japan’s central bank has embarked on an aggressive plan to weaken the yen.
A weaker Japanese currency translates into higher earnings for companies when the funds are repatriated back into the country. It also makes their products more competitive overseas.
Japan’s shares have climbed past the 15,000 mark for the first time since January 2008, as the yen continues to weaken
The yen is at a four-and-a-half year low against the US dollar, trading at the 102 mark in Asia.
The currency has declined by more than 20% since Japanese PM Shinzo Abe took office in December last year.
Shinzo Abe has backed the central bank’s ultra easy monetary policy, which calls for pumping more money into the Japanese system.
The move is aimed at weakening the currency but also raising consumer prices in the hopes of boosting consumption at home.
Japan’s economy has been battling nearly two decades of falling prices, known as deflation, which discourages spending by companies and consumers as they hold out for a better deal.
Shares of Isuzu Motors climbed 20% after it posted a record full year net profit of $946 million, driven by strong overseas sales.
Sony shares are also surging after one of the company’s biggest shareholders suggested the firm should spin off up to 20% of its entertainment business, and use the funds to shore up its struggling electronics arm.
Japanese shares have risen after finance ministers of the G20 group of nations avoided singling out Japan for criticism over the recent yen weakness.
The yen has dipped nearly 15% against the US dollar since November amid Japan’s efforts to stoke inflation.
There were concerns that a criticism from G20 may prompt Japan to alter its aggressive stance. The fears were that it would result in the yen rising again and hurt Japan’s plans to spur growth.
Japan’s Nikkei 225 index rose 2%.
Meanwhile, the Japanese currency continued to weaken. It fell 0.6% to 94.12 yen against the US dollar.
It also dipped 0.5% to 125.50 yen against the euro in early Asian trade.
“At the G20 meeting, there wasn’t as much criticism from emerging countries about the recent yen’s weakness as feared. That spurred yen selling,” said Kyoya Okazawa, head of global equities at BNP Paribas.
Japanese shares have risen after finance ministers of the G20 group of nations avoided singling out Japan for criticism over the recent yen weakness
Analysts say the G20 communiqué at the end of its meeting in Moscow on Saturday was an endorsement for Japan’s recent monetary moves.
The policies have seen Japan’s central bank, the Bank of Japan, double its inflation target to 2% in attempt to spur domestic consumption.
The central bank has also expanded a key stimulus measure aimed at keeping long term interest rates low.
Analysts say that as Japan continues to pursue these policies, the yen is likely to weaken further.
“With Japan, as yet, using various measures to ease monetary conditions domestically, we do not expect a large international backlash against its efforts and look for the Japanese yen to continue to decline gradually as the easier monetary conditions feed through,” Barclays Capital said in a note.
A weak yen bodes well for the Japanese exporters and its economy on various fronts.
To begin with, it makes their goods more affordable to foreign buyers. It also helps boost the exporters’ profits when they repatriate their foreign earnings back home.
And as firms see their profits rise, they are likely to have a bigger cash pile to invest in research and development or expansion of their facilities.
Investment in research helps the firms become more competitive as they develop new products. Meanwhile, increased capital investment helps boost Japan’s overall economic growth.
Japan’s economy contracted in the third quarter of 2012, as a global economic slowdown and anti-Japan protests in China hurt its exports, while domestic consumption remained subdued.
Japan’s gross domestic product (GDP) contracted 3.5% from a year earlier.
Compared with the previous three months, the economy contracted 0.9%.
The weak data is likely to put pressure on the government to boost stimulus measures to spur growth.
“There are risks from both domestic and external factors,” said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
“As such, the Bank of Japan [BOJ] will stand ready to ease monetary policy again, and it would not surprise me if the BOJ eased again by the end of this year.”
Japan’s economy, the world’s third-largest, has been trying to recover from last year’s earthquake and tsunami, which caused widespread destruction in the country.
However, its recovery has been hampered by a combination of factors.
A slowdown in key markets, such as the US and eurozone has hurt demand for its exports, one of the biggest drivers of Japanese growth.
Slowing growth and anti-Japan protests in China – Japan’s biggest trading partner – have further impacted its export sector.
To add to its woes, the debt crisis in the eurozone and weak recovery in the US have seen many investors flock to safe-haven assets such as the yen, resulting in the Japanese currency strengthening against the US dollar and the euro.
The yen has risen 5% against the US dollar since March this year and 8.5% against the euro during that period.
That makes Japanese goods more expensive for American and European consumers, hurting the earnings of the country’s exporters.
To make matters worse, attempts by policymakers to boost domestic demand have had little effect. Private consumption fell 0.5% in the July to September quarter, from the previous three months.
Analysts said that given these factors the economy was likely to shrink further in the current quarter and enter a technical recession.
“The decline in exports seems large. Consumption and capital expenditure were also weak, showing that both external and domestic demand are weak,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.
“Economic data deteriorated sharply from September, and this means Japan is already in recession,” he added.
Faced with slowing external and domestic demand, Japan’s central bank has taken various steps to try and spur growth.
Earlier this month, the BOJ extended its asset purchase programme by 11 trillion yen ($138 billion). Under the programme, the central bank buys bonds to keep long-term borrowing costs down.
It also said that it will offer unlimited loans to banks to encourage lending in an effort to boost domestic consumption.
However, analysts said the measures were unlikely to have a major effect, not least because firms were holding back expansion plans in the wake of an uncertain economic environment.
“There is very little demand for credit. In fact Japanese firms are holding back on capital expenditure,” said Junko Nishioka, the chief economist of RBS Securities in Tokyo.
Junko Nishioka added that policymakers instead needed to focus on measures that will help weaken the yen, as the uncertain global economic environment was likely to see the Japanese currency, which is seen by some as a safe-haven asset in such times, remain strong.
