Bye, bye Abenomics.
Global investors have given up on Abenomics, the three-tiered economic plan of fiscal and monetary stimulus and structural reform by Japan’s Prime Minister Shinzo Abe.
Over the past 13 weeks, overseas traders have pulled $465 billion in shares out of Tokyo’s stock market, reported Bloomberg. This is the longest stretch since 1998. Since the start of the year, the benchmark Topix index has fallen 18%, the world’s steepest decline behind Italy.
Foreign investors no longer believe the program can halt Japan’s three-decades-long decline. Almost daily, they receive reports of a deteriorating economy, and watch the Bank of Japan’s stimulus backfires only to send the yen rising, which in turn hurts exporters.
When Abenomics was introduced in 2013, consumer prices steadily rose toward the BOJ’s goal of 2% inflation until mid-2014. It also sent Japanese shares to an eight-year high. Now about half of those gains are gone.
Today there’s little sign of inflationary pressure in Japan. Prices in February didn’t rise, wage growth is slow and the economy contracted last quarter.
“We’re about to see a world where everything achieved through the BOJ’s easing will vanish,” Hitoshi Ishiyama, chief strategist at Sumitomo Mitsui in Tokyo told Bloomberg. “The lack of trust in Abenomics, zero results from the BOJ’s stimulus, risks of sliding profits from a stronger yen — it’s not surprising foreign investors will want to re-evaluate their investments in Japanese stocks.”
Surprisingly, the things that have helped other equities markets around the world have hurt Japan. The US Federal Reserve Bank’s cautious tone on interest rates helped the Standard & Poor’s 500 Index recover most of its losses since the beginning of the year. At the same time, it weakened the dollar and pushed up the yen. Investors who have been worried about global growth have actually been buying the Japanese currency in a flight to safety. The yen is now trading near its strongest level since October 2014.
Even BlackRock, the world’s largest money manager, has stopped putting out bullish calls on Japan equities.
Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui Asset Management, told Bloomberg he fears a downward spiral. Foreign investors are needed to boost the stock market, and if equities don’t rise the public will lose confidence and curb spending, as he sees it. That could send Japan back into deflation.
According to a Merrill Lynch survey, overweight positions on Japanese stocks fell for a third straight month in March, with investors’ outlook on the economy dimming and concern over earnings growing. They’ve sold a net 5 trillion yen since the second week of January, the longest stretch since 16 weeks of selling in 1998 and the most in records going back to 1993.