It wasn't a leap for joy.

But investors on the Tokyo Stock Exchange have responded positively to monetary policy statements by the Governor of the Federal Reserve, Jerome Powell.

The Nikkei index started the trading week with a slight gain of 0.5 percent to 27,789 points.

On Wednesday, the index rose by 1.3 percent to 28,451 points, closing the highest level since mid-July.

Patrick Welter

Correspondent for business and politics in Japan, based in Tokyo.

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At the Fed's Jackson Hole conference late last week, Powell abandoned a schedule for reducing bond purchases, saying only that it could happen this year. Interest rate hikes in America are therefore still a long way off.

With the continued expansionary environment in the United States, the financial markets in Tokyo are not threatened with any trouble from the other side of the Pacific for the time being. But Japan is currently producing the hardship without outside help. It is reflected in the longer-term development of the Nikkei index. The index approached a thirty-year high in the first few months of the year. But since the high of 30,714 points in mid-February, the Japanese benchmark index has lost a good 9 percent of its value. Since the beginning of the year, the Nikkei has increased by around 2 percent, while important stock indices such as the Dow Jones and the Dax rose by around 16 percent. Of the world's major stock markets, the Japanese stock market performed the worst this year, with the exception of the Chinese trading venues in Shanghai and Hong Kong,who have lost since the beginning of the year.

Record numbers of infections instead of on the stock market

The divergence of developments shows how much Japan has decoupled from the international economic recovery in the pandemic.

It takes revenge that Japan did not start vaccinations against Covid-19 until around three months later than Western nations.

This makes the country economically more vulnerable to the uncertainties of the pandemic, which are slowing down private household consumption.

Japan barely missed the recession in the second quarter.

Since July, during the Olympic and Paralympic Games, of all things, the delta variant in the fifth virus wave has been burdening the Japanese. Now virus and no longer stock market records determine the picture. The uncertainties are reaching into politics. Dissatisfaction with the government because of the anti-corona policy, which is perceived as inadequate, is increasing. At the end of September, Prime Minister Yoshihide Suga has to face the election of party leader of the Liberal Democrats and a new election for the lower house by the end of October at the latest. Suga prepares new economic measures against the weak economy, which could support stock prices. A new stimulus package could also raise the mood ahead of the election. Financial analysts expect the Nikkei index to reach almost 30,000 points again by the end of the year.This was shown by a survey by the Reuters news agency in mid-August. The respondents expect the domestic economy in Japan to stabilize with increasing vaccinations. Reference is also made to the generally positive outlook and many improved forecasts that the companies presented during the presentation of the quarterly reports in the past few weeks. Judging by the earnings outlook, Japan's stocks are currently around half as expensive as they were in February.Judging by the earnings outlook, Japan's stocks are currently around half as expensive as they were in February.Judging by the earnings outlook, Japan's stocks are currently around half as expensive as they were in February.

The earnings estimates for the broader Topix have risen a little more than 2 percent in the past two weeks, comments John Vail, chief global strategist at Nikko Asset Management. He points out that expectations for the S&P 500 in the US and Europe have remained largely unchanged. “The earnings growth of Japanese companies is perfectly competitive despite all fears,” says Vail. But further shocks in the wake of the pandemic cannot be ruled out. The shortage of semiconductors and computer chips in particular can hit Japan's manufacturing industry.

In August, the global market leader, the automaker Toyota, announced that it would reduce its production in Japan by 40 percent in September. Toyota shares fell 5 percent at times. Honda and Nissan as well as a number of suppliers were also negatively affected. Toyota justified the cut with Covid-related production losses of intermediate products in Southeast Asia, including semiconductors. The episode illustrates the risks that can still arise from the pandemic despite the global vaccination campaign. With a plus of 20 percent since the beginning of the year, Toyota Motor shares easily beat the Nikkei index.