[Click eStock] "Strong Japanese Stock Market... Super Yen Effect to Continue for a While"

Nikkei Index Surpasses 38,100 for the First Time in 34 Years
Last Year's Q4 GDP Growth Rate Down 0.1% QoQ

Hi Investment & Securities commented on the Japanese stock market on the 16th, stating, "The Nikkei 225 index surpassed the 38,100 level for the first time in 34 years, but Japan's GDP growth rate in the fourth quarter of last year slightly missed market expectations, recording -0.1% quarter-on-quarter." They added, "The ongoing super weak yen effect is positively impacting companies and contributing to the stock price rally."

On the same day, Park Sang-hyun, a researcher at Hi Investment & Securities, said, "Although the third quarter of last year also recorded a -0.8% growth rate quarter-on-quarter, it is uncertain whether the Japanese economy has entered a recession. Rather, there are noticeable indicators supporting that the Japanese economy remains resilient."

[Image source=Yonhap News]

He continued, "First, although the Japanese economy contracted in the fourth quarter of last year, the annual growth rate reached 1.9%. Among major advanced countries based on last year's GDP growth rate, excluding the United States (annual growth rate of 2.5%), this is the highest growth rate. South Korea's (1.4%) growth rate was overtaken for the first time in 25 years. There is a high possibility of returning to a moderate growth trend from the second quarter of this year."

The super weak yen effect is also expected to continue for the time being. Researcher Park said, "Due to the impact of U.S. consumer prices in January, the dollar-yen exchange rate rose again to the 150 yen level. This will have a positive effect on the Japanese economy and stock market," adding, "The weak yen is contributing to the profits of Japanese companies. Despite sluggish growth, operating profits of all Japanese companies are steadily increasing."

However, domestic demand weakness remains a concern. Researcher Park noted, "The biggest reason why Japan's GDP growth rate in the fourth quarter of last year was weaker than expected was weak domestic demand, especially private consumption," and added, "Rising import prices due to the super weak yen appear to have constrained consumption recovery. The wage growth rate emphasized by the Japanese government and the Bank of Japan has not yet increased to the target level, effectively causing real wages to decline, which seems to have negatively affected consumption."

He added, "The wage increase during this spring labor offensive, which coincides with the Bank of Japan's monetary policy shift, will play an important role as a key variable influencing the Japanese economy, especially the consumption cycle."