There’s a lot of talk these days about the link between government actions and the stock market. Whether it be Ben Bernanke’s quantitative easing mission or European austerity measures, there usually is a pretty distinct cause-and-effect result between big policy decisions and moves in the stock market.
Well, Japan has taken things to a new level. Japanese Economic Minister Akira Amari, in a speech reported by The Japan Times, said, “It will be important to show our mettle and see the Nikkei reach the 13,000 mark by the end of the fiscal year.”
That’s 17% upside. And FYI, the fiscal year for Japan ends March 31. So that surge apparently is coming in the next few weeks.
It’s crazy to think that Japan’s politicians are making stock calls. But it’s not entirely unheard of. Remember when Barack Obama called the bear market bottom? The president told the American people that March 2009 was a good time to buy stocks. His exact words were:
“What you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal, if you’ve got a long-term perspective on it.”
Well said, Mr. President. Those who took his advice have doubled their money in the stock market since those dark days of financial crisis.
However, it’s worth pointing out that “advice” like this is easy to give with almost no negative consequences. If Obama was wrong … well, he’s just the president and not a hedge fund manager. And more importantly, he’s a politician looking to cheerlead a recovery. What do you want him to say? That the Dow is going to zero?
Same for Amari. Japan has already gone all-in with its central bank easing and stimulus plans. Is the government supposed to be pessimistic or lukewarm?
Anyway, so far it’s been hard to fight the tape on this Japan rally. After some policies announced a few months ago to weaken the yen and continued focus on stimulus and easing at the Bank of Japan, the Nikkei has rallied some 25% since Thanksgiving. The iShares MSCI Japan Index ETF (NYSE:EWJ) — powered by the likes of Toyota (NYSE:TM), Honda (NYSE:HMC), Sumitomo Mitsui Financial Group (NYSE:SMFG) and Mitsubishi UFJ Financial Group (NYSE:MTU) — is “only” up about half that.
But let’s not pretend that politicians have cast a magic — and sustainable — spell over stocks. That goes for Japan as well as elsewhere.
The news is noteworthy and makes headlines, but it’s hardly more than just another political soundbite.
- Even a Korean nuke test can’t rattle the rally. (Forbes)
- Japan is sticking to its devaluation of the yen despite G7 warnings against “currency wars.” (Reuters)
- Of course, Japan is starting to look like a crowded trade with all this piling in. (FT.com)
- And some analysts think that weighing in on a Nikkei target was … well, crazy. (Business Insider)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.