On August 28, Japan’s Prime Minister Shinzo Abe announced his resignation due to personal health reasons. Since two years ago, the media has reported his health deteriorating due to stress and fatigue.
To date, Abe is the longest serving Prime Minister in Japan. Since he took over the office in December 2012, the man has introduced a unique set of economic policies, commonly dubbed ‘Abenomics’. This policy has worked for the past eight years, aidinf Japan’s falling economy to find its balance against recession.
Abenomics comprise of three important policies: Keep the interest rate at zero or negative region; activate the country’s pension fund to support the national blue chips; and elevate Nikkei 225 to above the benchmark of 200 moving average.
The yen is popularly known as a safe haven against the US dollar. Whenever the dollar recedes in recession, euro is the most direct counter currency to rise against it. As the European Central Bank have been fighting hard to keep the euro devalued against the greenback, yen is naturally becoming the best currency to counterbalance against weak US dollar.
Why is that so? Because yen, dollar, euro, ppund and Chinese yuan are the five major currencies adopted as reserves in the IMF basket. The Trump administration has acted furiously and called China as currency manipulator since 2017 for devaluing the yuan. This is because UK, Europe and China all want to stay at low prices against the US dollar to expedite exports. Hence, Japan has always been used as a proxy to hedge against all falling major currencies.
While Abenomics has worked well for Nikkei 225 markets, we have seen the index rising from more than 8,000 levels to more than 20,000 in the past eight years. As Abe is going to retire soon, the Bank of Japan reassures that the Abenomics policy will continue to be reinforced in order to support the recovery.
On the other hand, Abe says that he will step down immediately once the right candidate has been selected in the Liberal Democratic Party. In our opinion, it is always not a surprise to see a new cabinet leader trying to impress the nation and create a new legend by erasing most of the old policies from its previous leader.
Regardless of whoever sits in the new office of Prime Ministry, it’s a humiliation if people call you a seat warmer or one who just follows the old order to survive without new innovations.
Hence, Nikkei 225 market might face a tough challenge over the year-end. Looking at the technical chart – it is resilient at 24,000 level and lightly to be contained above 16,000 in case of soon-to-come correction. Stay alert for the trend!
Dar Wong is a financial professional in Singapore for more than 30 years experiences. The expression is solely at his own. He can be reached at [email protected].