Yesterday, Japanese shares outperformed the region with a 0.7% gain that helped the Nikkei recoup almost all losses from Monday’s drop. The gain may have been propelled by the Bank of Japan’s decision to maintain its bond-buying program.

Bank of Japan keep stimulus plan going
Yesterday, the Bank of Japan pledged to expand the monetary base at a pace of 60 trillion to 70 trillion yen per year, in line with street consensus.

The decision to maintain its record easing comes on the back of April’s consumption tax bump from 5% to 8%, a move that some fear could strangle Japan's economic recovery if consumers suffer negative wage growth.

Japan’s 4Q2013 GDP’s growth of 0.3% had come below analysts’ expectations for 0.7%. Many economists have been expecting consumers to rush out and stock up on supplies prior to the sales tax hike due in April. According to a Bloomberg poll, Japan’s economy is forecast to shrink 3.9% in the three months from April, ending a projected six straight quarters of growth.

According to CNBC, some economists believe that continued weaker than expected growth may prompt further easing from the Bank of Japan. The Bank of Japan had spurred the Nikkei 225 to make its biggest one-day rally this year when it doubled the scale of lending programs on February 18, fuelling expectations of further easing. Based on a Bloomberg survey of economists, 88% foresee further easing by the end of the year.

Nikkei trading above important level
Yesterday’s gain took the Nikkei 225 back above 15.155 – the important 50% retracement of its fall from 16,320 on 30 December 2013 to 13,996 on 5 February this year.

Looking at fundamentals, Bloomberg pointed out that stocks on the Tokyo Stock Exchange fell 5.3% this year, the biggest drop among major developed markets, after surging 51% last year. The gauge traded at 1.21 times book value yesterday, compared with 2.62x for the S&P 500 and 1.86x for the Stoxx Europe 600 Index yesterday.

Source: Macquarie Research - 12 Mar 2014