Uneasy Situation Continues

Against many expectations, Tokyo Stock Exchange kept on declining on Tuesday, after three days of non-operational holiday weekend. Among the many possible reason of the new year slump, China factor loomed up as fundamental problem in international economy, taking over other elements, geopolitical risk or energy revolution. Economic policy of Shinzo Abe administration looks like getting into serious environment.

Nikkei Average dropped to ¥17,218.96 on Tuesday, steep decline from last Friday by ¥479. It was six-day consecutive down, renewing the record from 1949 when Tokyo market resumed its operation after World War II. Investors turned to selling in all kinds of brand in the morning. After lunch recess, decline of Nikkei was accelerated, marking ¥500 temporary drop.

Main concern of the investors was possible speed-down of Chinese economy. Shanghai Composite Index showed major decline on Monday, while the Japanese were cerebrating Coming of Age Day. Since Shanghai abolished its new system of “circuit breaker,” investors seemed to be free in exchanging stocks, mainly leaning on selling.

What does “investors” mean? That is oil money. New York Oil showed abrupt down to the level of $30 per barrel on Monday. Cheap oil was a result of speculation on less demand in China. Oil price down also caused negative impression on financial situation of oil producing countries and possible sucking up oil money from international market. It was reported that fiscal deficit of Saudi Arabia had swollen from 3% against its gross domestic products in 2014 to 15% in 2015. Economists in Tokyo supposed that shrink of oil money in monetary market would be continued.

To hedge those risks, investors were looking at Japanese yen as safe haven of their money. That tendency raised the price of Japanese yen. Tokyo Foreign Exchange marked ¥117 for one dollar on Tuesday. With ¥1 of hike in foreign exchange, Toyota Motors loses ¥40 billion of its operative profit. It affects Japanese major companies, including car makers, electric appliances or steel, which have been the leaders of Japanese economic growth.

Abe administration keeps on saying “calm down.” “Too much noisy, isn’t it? It should be better to watch closely,” said Minister of Finance, Taro Aso, in his press conference on Tuesday. But, Abe administration is highly dependent on economic situation, because its policies have been build on greater tax income from the business sector. “Tax income has been increasing from the beginning of my administration three years ago. Economy has been supported by growing business tax and income tax,” Abe answered to the question about resource of tax relief next year in the discussion of the Diet on Tuesday. Is it true for the future?