The below graph represents the Line movement of Nikkei Index since start of 2012 against the movement of USD/JPY which indicates that as USD/JPY moves up Nikkie has a positive correlation with it.
Japan’s Nikkei 225 Stock Average gained 1.9 percent as yen slumped sharply today to test 7-month low on prospect of unlimited easing from BoJ and is the only index which has closed on positive note among global indices. The weakness started yesterday when current Prime Minister Noda said that he will dissolve the parliament, which would in turn trigger an election schedule on December 16. The JPY’s drop was not attributable to political uncertainty but rather the prospects that a likely opposition led LDP victory in any new election would lead to a more aggressive stance on policy, putting more pressure on the BoJ to ease. The political risk and uncertainty going forward could potentially create a situation for Yen weakness across the board.
Historically, we have witnessed that Nikkei index has yielded negative return on annual basis largely due to appreciation of the currency. Japan being export oriented country, currency depreciation adds values to economy as well as positive return for investors from the benchmark equity index. If Yen continues its deceleration mode then it would benefit the benchmark index to climb higher above 9000 mark in coming sessions.
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