After three weeks of miserable performance, Japan’s Topix is up 5.21% and the Nikkei 4.94% today, thanks to some much-needed good news. The country’s current account surplus doubled from April last year and bank lending increased the most in May since 2009, while economic growth in the first quarter of this year was revised upward to 4.1%, from 3.5%.
The immediate positive reaction in the markets shows just how volatile Japanese stocks are, as investors swing from pessimism—which knocked $600 billion in value off markets in the last few weeks—to optimism over Japan’s ambitious suite of economic policies known as “Abenomics.”
An end to the recent downward spiral is good news for the policies’ namesake, Japan’s prime minister Shinzo Abe, whose speech last week laying out the third and final part of his economic plan—the growth part—failed to impress. The yen, which Abe is trying to devalue in an attempt to eject Japan from a cycle of deflation, rose sharply against the dollar over the next few days.
There is a good chance that the markets will ride Monday’s recovery into more positive territory, but details suggest that there are still structural problems to overcome. Bank lending rose 1.8% in May from a year earlier, but small and medium companies were not receiving much of it. And there’s still another hurdle to come. US Federal Reserve chairman Ben Bernanke’s comments last month—which suggested that the US would ease back on monetary easing—sent worldwide markets reeling. Sentiment has recovered since then and the Fed has not eased back, but it will happen eventually, and the kind of volatility seen in Japan’s markets in the last few weeks is very likely to return once again. As we’ve seen, a few words is all it takes.