The Tokyo Stock Exchange at the Highest in Seven Years

The Tokyo Stock Exchange at the Highest in Seven Years

Tuesday, November 11, the Nikkei index, composed of 225 Blue Chip stocks, posted a gain of 2.05%, ending the session at 17,124.11 points and thus crossing the symbolic threshold of 17,000 points for the first time since October 2007.

Several factors seem to explain this increase. First, it is the decline in yen against dollar, which promotes the business of Japanese exporters.

This decline has accelerated since the end of October, including the effect of the unexpected decision by the Bank of Japan (BoJ) to expand its asset purchase program. Since then, the Nikkei index soared nearly 10%.

At the close on Tuesday, dollar was at 115.16 yen, having occasionally fallen below 113 yen on Monday. Euro was also up compared to 143.08 yen to the previous day.

Postponement of possible VAT increase

Another factor explaining the increase in the Nikkei: investors seem to rely on a second postponement of the VAT increase, originally scheduled for fall 2015 by the government. Financial circles believe that the first increase of the consumption tax in early April this year battered the Japanese economy. The Japanese have reduced their spending. Consumption has dropped 4.7% in August over a year after a contraction of 5.9% in July.

Businesses were very conservative in their investment moves, waiting to see the evolution of demand. This VAT effect was felt on gross domestic product (GDP) of Japan, which fell by 1.8% between April and June compared to the previous quarter.

Rumors of dissolution

In recent days in Japan rumors also had it that Prime Minister Shinzo Abe could, in the wake of the announcement of a postponement of the VAT increase, dissolve the lower house to call for early elections.

The number one New Komeito allied centrist Liberal Democratic Party (LDP) Abe announced on Tuesday to be preparing for early elections, and “if it is decided quickly, could take place by the end of this year “, two years ahead of schedule.

Another trigger was also the announcement made on Monday, November 17, on figures of GDP growth for the third quarter.

Thereby accommodating the election schedule and in the absence of strong opposition, Abe would be likely to win and then have more legitimacy and time to give a new impetus to its economic policies, dubbed “Abenomics.”

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