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Japan: A quiet 2015 performer

By: Catherine Yoshimoto, Senior Index Product Manager

As the performance of emerging markets stocks remains volatile and market participants begin to question the sustainability of the United States’ decade of growth, other developed market stocks are attracting interest. Notably, investors have started to pay attention to Japan.

Following a lengthy recessionary and deflationary period afflicting the country since the 1990s, the Japanese equity markets have recovered relatively quietly. The comeback has unfolded amidst the controversial Abenomics—the monetary, fiscal and structural reforms championed by Prime Minister Shinzo Abe since his election in late 2012.  

The centerpiece of Abe’s reforms is aggressive monetary easing by the Bank of Japan. With the objective of spurring inflation and driving economic growth, Japan’s central bankers have embarked on “quantitative and qualitative easing” or QQE. The program succeeded in driving interest rates and borrowing costs to near zero, and on January 29 the Bank of Japan announced it was taking stimulus measures a step further, pushing the rate on excess reserves into negative territory.

So how have the Japanese equity markets fared against this backdrop? Market participants may be surprised to observe that the Japanese equity market has in fact outperformed the US equity market over the past three years in local currency terms (Russell 3000 Index in USD and Russell/Nomura Total Market Index in JPY). Following a disappointing December when the performance of many global markets turned negative, the Russell/Nomura Total Market Index returned over 12% for the year compared to the Russell 3000 Index’s 0.5% return.  

Source: FTSE Russell, data as at December 31, 2015. Past performance is no guarantee of future results. Please see end for important legal disclosures.

While Abe’s monetary stimulus might in some part be behind the rally, market reports suggest some additional catalysts could be in play. As the yen has fallen sharply lower against the U.S. dollar, many Japanese exporters have realized significant profit gains from selling goods overseas. As a result, some Japanese companies have recently reported record profits, helping boost equity performance.

Japan’s recent equity market comeback coincides with the 20th anniversary of the launch of the Russell/Nomura Japan Equity Indexes (RNJEI). Just as it did 20 years ago, the RNJEI series provides broad and representative Japanese equity benchmarks that are comprehensive, float-adjusted, modular and transparent. The Russell/Nomura Total Market Index—which encompasses all indexes in the RNJEI series—includes 98% of the market capitalization of all Japanese listed companies and includes 1,400 stocks as of the most recent annual reconstitution, which took effect on December 1, 2015.

As a comprehensive representation of Japan’s equity market, the Russell/Nomura Total Market Index has tracked the growth of Japanese equities over the past five years. As shown below, total market capitalization for the index has nearly doubled since 2010.

Source: FTSE Russell, data as at December 1, 2015. Past performance is no guarantee of future results. Please see end for important legal disclosures.

The way forward for Japanese equity markets still remains to be seen. While we certainly cannot foretell the direction the markets will go from here, the Russell/Nomura Japan Equity Indexes continue to provide market participants with comprehensive index tools and benchmarks for the Japanese equity market.


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