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Abenomics in Japan: Have They Fueled the Nikkei's Astounding Surge?
Nope, Japan's market action is a matter of pattern, not policy, says EWI analyst

By Nathaniel Williams
Mon, 18 Mar 2013 18:00:00 ET
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When surprising events occur, we all want answers -- to know the why behind the what.

And when it comes to Japan's seemingly inexplicable 40% stock market surge -- and the dramatic 23% reversal in the yen -- conventional analysts point to one place: Japan's new Prime Minister Shinzo Abe and his Liberal Democratic Party (LDP), who have promised to do "whatever it takes" to stop Japan's deflation.
 
You can find the reasoning in headlines across the financial media:
 
--      "Japan's Nikkei sprints ahead on Abe fever" - CNN Money, 2/10/13
--     "Tokyo stock rally fuelled by 'Abenomics'" - Financial Times, 2/22/13
--     "The Japanese stock market is on fire, and Abenomics is the kindling" - Quartz, 3/18/13
 
This assumption has gained widespread popularity -- but it is deeply flawed. In the 10-page March 2013 issue of The Asian-Pacific Financial Forecast, editor Mark Galasiewski explains why in a special section titled, "Pattern, not policy":
 
"The first [flaw] is that Japanese government bonds ... have continued to rise. If inflation is imminent, then why aren't bonds collapsing? The second flaw is that the theory contradicts history. Bloomberg's William Pesek points out that in the 15 months leading up to March 2004, Japan spent $391 billion worth of yen -- more than Taiwan's annual gross domestic product -- and yet the yen did not weaken. Japanese stocks also soared, despite the rising yen.
 
"In fact, conventional observers are just doing what they always do: looking back to around the start of a financial trend (stock surge, yen drop), finding a significant event from around that time (Abe rhetoric), and then assuming that the event caused the trend. While such ad hoc pairings merely appear to explain market moves, the Wave Principle actually can explain why Japan's markets have seemed to obey the LDP's policies at some times while ignoring them at others: Financial markets follow their own wave patterns, regardless of a government's policies.
 
"The LDP ruled Japan most of the time from 1955 to 2009. Throughout that period, its policies hardly changed. During the postwar bull market, commentators credited the party for the uptrend; after the bear market started in 1989, they criticized the party for failing to reverse the downtrend. Now that stocks are rallying again, commentators are again crediting the ruling party's policies for their supposed effectiveness."
 
While conventional observers are busy making after-the-fact observations, The Asian-Pacific Financial Forecast has been giving readers forward-thinking forecasts based on the Elliott Wave Principle.
 
Case in point: The Asian-Pacific Financial Forecast did not attribute the Nikkei's surge to Abe's new economic policies -- because it had already anticipated the move a month before his election victory. Indeed, since its bullish call on Nov. 2, 2012, the Nikkei has rallied more than 35%.
 
This is the value of Elliott wave analysis. Using the Elliott Wave Principle's timeless insight that markets are patterned and therefore predictable, EWI's analysts can explain and forecast market action.
 
Don't miss the next major move in the region. Put yourself ahead of stock market trends in Japan and other Asian-Pacific markets with refreshingly contrary insights you won't find elsewhere. Put The Asian-Pacific Financial Forecast on your screen in minutes.
 



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