Japanese Stocks Fall 5% With Market Uncertain Over Growth

HONG KONG — The Japanese stock market lurched downward again on Thursday, sinking more than 5 percent at the close in Tokyo, as nervousness over the prospects for economic growth in Japan and elsewhere lingered.

A wave of optimism about Prime Minister Shinzo Abe’s efforts to haul the Japanese economy out of years of listless growth had sent Japan’s stock markets on a six-month rally that began in November. The gains came to a sharp end last Thursday, when the Nikkei 225-share index slumped 7.3 percent.

Trading has been volatile ever since, as investors have taken stock of signs that the U.S. Federal Reserve may, before long, begin to scale back its stimulus efforts in the United States, and weighed the pros and cons of taking profits after the previous rally.

Higher bond yields in Japan and an end to a welcome weakening in the yen also have contributed to the nervousness.

The Nikkei’s fall on Thursday took the index to its lowest level since early May. The index has fallen more than 10 percent from a high reached last week, though it remains well above where it began the year.

A batch of data due out Friday is likely to be closely watched for evidence of how far Mr. Abe’s policies have succeeded in reinvigorating economic activity and combating the deflationary pressures that have weighed on Japan for years.

The data, for the month of April, are expected to show that industrial production has improved and that deflation has abated somewhat. Analysts polled by Reuters forecast that core consumer prices have fallen 0.4 percent from a year earlier, an improvement on the 0.5 percent decline recorded in March.

“We think data will show that the Japanese economy has maintained a modest recovery trend” in the second quarter of this year, analysts at DBS said in a research note.

On the other hand, the probability that prices continued to fall in April also highlights how tough it has been to combat deflation, and underlines the concerns of many analysts that the central bank’s aim of reaching 2 percent inflation in about two years will be tough to attain.

Analysts and investors also are eager for progress on promised structural overhauls, which many see has crucial to the overall economy-lifting efforts of Mr. Abe’s government.

The challenges are whether the government’s long-term growth strategy and fiscal reform plan will be “able to bolster investor confidence about Japan’s growth prospects and address their concerns about Japan’s fiscal health,” the DBS analysts said. “A credible reform plan is needed to avoid a deeper correction in the equity and bond markets.”

Article source: http://www.nytimes.com/2013/05/31/business/global/japanese-stocks-fall-5-with-market-uncertain-over-growth.html?partner=rss&emc=rss