The Nikkei 225—Japan’s most highly cited stock index—has been on a wild ride this year. On May 22, the index was up 50% since the start of the year. But after four days of approximately 500-point losses, the Nikkei has erased 23% of its gains. The index fell 3.7% today alone.
Analysts credit a lot of Japan’s stock market rally to promises from the Japanese government and the Bank of Japan that they will create inflation and spur economic growth in a three-pronged program referred to as Abenomics. If all goes as they hope, the program would end two decades of economic malaise. But faith in these policies could be flagging. Whether or not this is the time to freak out about Japan, investors are certainly questioning their faith in Japanese stocks.