Nikkei Falls 20 Percent

A blog about business and economics.
June 13 2013 6:59 AM

Why the Nikkei Has Fallen 20 Percent in Less Than a Month


The Japanese stock market tumbled 6 percent in the most recent day of trading and has fallen by about 20 percent in three weeks. That comes on the heels of an enormous months-long rally touched off by Prime Minister Shinzo Abe's agenda of expansionary monetary policy. But it seems that what Abenomics giveth, Abenomics also taketh away.

One longtime Abenomics skeptic wagged at me when the Nikkei closed that this shows you can't achieve prosperity via currency debasement. But I think Lars Christensen's chart of inflation expectations reposted above shows the opposite. As long as investors believed that Abe and the Bank of Japan were committed to inflation, investors also believed in shares of Japanese companies. But rising inflation expectations pushed nominal bond yields up (as indeed they would almost have to), which sparked some highly public hand-wringing, a fall in inflation expectations, and a stock market crash. Some will see this as evidence that expectations-based monetary policy doesn't work (see Cardiff Garcia's useful roundup of fiscalists versus monetarists), but I tend to think that we're actually seeing the power of expectations. If BoJ President Kuroda were to issue a strong statement taking note of the situation and reiterating his intention to push inflation expectations back up to 2 percent despite being fully aware that this will increase nominal yields on Japanese bonds, then I bet that we'd see all these trends reverse.

But whatever you make of that, let there be no mistake—the Nikkei rally corresponded with a decline in the yen and a rise in inflation expectations while the crash has corresponded with a stronger yen and lower inflation expectations. The variable all move together. The scenario in which the currency is debased and the real economy suffers has not yet been seen.


Meanwhile in light of the continued debate on this topic, let me once again urge legislators in major developed countries to pass laws designed to explicitly authorize joint fiscal-monetary operations (i.e., "helicopter drops") in which, rather than purchasing bonds, central banks will directly give cash to citizens. The bond purchasing channel is problematic in a number of ways, not least of which is that it invites precisely the confusion over the direction of interest rates that seems to have tripped Japan up. When large-scale asset purchases push asset prices down rather than up, people become confused. Direct cash injections explicitly designed to boost prices and real output are clearer, fairer, and more transparent.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.


Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Students Aren’t Going to College Football Games as Much Anymore

And schools are getting worried.

Two Damn Good, Very Different Movies About Soldiers Returning From War

The XX Factor

Lifetime Didn’t Think the Steubenville Rape Case Was Dramatic Enough

So they added a little self-immolation.


Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

Why a Sketch of Chelsea Manning Is Stirring Up Controversy

How Worried Should Poland, the Baltic States, and Georgia Be About a Russian Invasion?

Trending News Channel
Sept. 19 2014 1:11 PM Watch Flashes of Lightning Created in a Lab  
  News & Politics
Sept. 20 2014 11:13 AM -30-
Business Insider
Sept. 20 2014 6:30 AM The Man Making Bill Gates Richer
Sept. 20 2014 7:27 AM How Do Plants Grow Aboard the International Space Station?
  Double X
The XX Factor
Sept. 19 2014 11:33 AM Planned Parenthood Is About to Make It a Lot Easier to Get Birth Control
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
Brow Beat
Sept. 20 2014 3:21 PM “The More You Know (About Black People)” Uses Very Funny PSAs to Condemn Black Stereotypes
Future Tense
Sept. 19 2014 5:03 PM White House Chief Information Officer Will Run U.S. Ebola Response
  Health & Science
Bad Astronomy
Sept. 21 2014 8:00 AM An Astronaut’s Guided Video Tour of Earth
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.