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Stocks

Japan stocks on track, but Abe's growth policy may disappoint market

TOKYO -- Stocks here kicked off June on a strong footing, with the Nikkei Stock Average topping the psychological threshold of 15,000 Tuesday for the first time since April 4. The rise was led by the Dow Jones Industrial Average's record high close Monday and the yen's depreciation against the dollar. 

Recovery on track?

Compared with other major stock indexes worldwide, Japanese stocks are getting back on track at a faster pace, with the Nikkei index rising 7% since hitting its recent low on May 19. The benchmark index has been the second-best performer after its Greek counterpart, the Athens Composite Index, which climbed 17%.

     Is this trend strong enough to shake off the bearish mood that has dominated the overall market since the beginning of the year?

     So-called global macro hedge funds have begun shifting their money to emerging markets, as they were seen as laggards, since mid-March when market players were increasingly confident that tensions in Ukraine would only slightly influence the world economy. Shingo Kumazawa, market analyst at Daiwa Securities, said that stocks' decline in some emerging countries indicates that short-term investors have begun shifting their money to Japanese stocks after locking in recent gains on emerging markets.

Signals to rise

Futures-led buying is also on the rise. In early May, the trading value of Nikkei Stock Average futures accounted for less than 20% of the total on the first section of the Tokyo Stock Exchange on an intraday basis. But the figure recently rose to slightly less than 40%. Makoto Kikuchi, representative director at Myojo Asset Management, said that short-covering by speculative investors is lifting the market. Such investors have likely become confident in the resilience of Japanese stocks when the Nikkei index touched 14,000, he added. This view is supported by many players.

     On the first section of the TSE, 142 issues hit all-time highs Monday, the most since April 2, and the trading value continued topping the boom-or-bust threshold of 2 trillion yen Tuesday. Amid market optimism, expectations are growing that the government's next growth strategy will send Japanese stocks even higher, following recent media reports that the government is planning to expand low-interest financing for entrepreneurs and some other details to be included in its growth strategy, which is due out this month.

     Nobuhiko Kuramochi, head of the investment information department at Mizuho Securities, said that particular attention is paid to moves to support the Japanese stock market. He cited examples, including reports on Japan's corporate tax cuts, the government's plan to expand the tax-free limit for the NISA program, Japan's version of Britain's individual savings account system that took effect in January, and the move of the Government Pension Investment Fund, Japan's pension fund giant, to increase its holdings of domestic shares.

Or not to rise

On June 5 last year, the Nikkei index lost more than 500 points, with Nikkei stock futures coming under growing selling pressure, after Prime Minister Shinzo Abe explained his previous growth strategy with a key expression of "an explosion of private sector vitality." The fall was driven by the view that the new policy failed to surpass investor expectations. The current situation, in which there are many media reports favorable for the stock market, reminds market players of the nightmare last June, when the government's announcement exhausted all trading cues and dragged down Japanese stocks.

     Short-term investors may have become a driving force for the Nikkei index to top the 15,000 mark, but they are also fleet-footed. The last year's sharp declines in the overall market could again become reality, unless the upcoming growth strategy exceeds market expectations.

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