Does today's bounce in Tokyo and other Asian markets mean the rally there is back on?

01/09/2013 1:21 pm EST


Jim Jubak

Founder and Editor,

One day doesn’t a rally make but…

I find myself writing that a lot recently. Yesterday it looked like a move up in gold could mark a turn in the gold market. This morning, so far, gold has given back about half of yesterday’s gains.

And this morning it’s the theme of this post on the bounce (not yet a rally) in Asian markets last night.

After sagging for two days, shares in Japan and China are up today. The Shanghai Composite Index was down 0.03%, essentially unchanged.

Today’s action re-enforces my belief that the decline in the first two days of the week was the normal pause that follows on a big advance like that recorded by the Tokyo market since the election of the pro-stimulus Liberal Democratic government of Prime Minister Shinzo Abe.

The higher close in Tokyo today wasn’t a surprise after the Abe government leaked news of a stimulus shock large enough to revive a diner suffering from fugu poisoning.

The extra budget package expected to be announced on Friday would be the largest since the global financial crisis supplementary budget of April 2009. Japanese newspapers are reporting that the government is thinking about an extra budget package of 12 trillion to 13 trillion yen in additional spending. (About $140 billion.) The April 2009 extra budget was 13.9 trillion yen.

Up to 6 trillion yen of the new extra budget spending would be targeted to public works spending, according to press reports.

This all comes before any stimulus spending in the annual budget for the next fiscal year that will be drawn up in April or May.

And the extra budget announcement will come in the run up to the January 21-22 meeting of the Bank of Japan. The central bank is under intense pressure from the Abe government (and the December election results) to announce a 2% inflation goal that would guarantee monetary stimulus and a further decline in the yen.

Most economists expect that the Japanese economy contracted about 0.5% in the December quarter. That would come on top of the annualized 3.5% contraction between July and September.

Given this news, it’s clear that stocks should have climbed in Tokyo. But what’s of interest to me as I try to find a trend in this market that might last more than three days is the bounce in non-Japanese Asian markets as well. Markets in Hong Kong, Singapore, Malaysia, Thailand, and the Philippines were all up overnight.

That’s the kind of behavior I’d expect if the selling during the first part of the week were just a temporary pause in an upward run that still has some legs.

We’ll see. As I said, one day does not rally make. But I sure prefer sitting here worrying about whether or not a upward move will hold than worrying about how far down a pause might go.
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