Japan’s traders had a busy year in 2013, heavily concentrated during the late spring period. However, volumes since have failed to emulate that activity and traders today are looking for a new rationale to carry Japan’s market renaissance further.
In 2013, the macro push was provided by quantitative easing, which was one of the initial drivers of Abenomics. The yen/dollar exchange rate fell, giving an impetus to Japanese stocks and invigorating traders.
“Quantitative easing in Japan and elsewhere has been something of a drug. The more you inject of it, the more you need in order to get the same effect,” says Ofir Gefen, head of electronic brokerage and analytics, Asia Pacific at ITG. “People are waiting and taking a look at how Japan will play out. One part of the Abenomics plan was quantitative easing and driving the US$ rate, another part was changing business culture – and this is what people are waiting for. The question now is, how does Abenomics work beyond quantitative easing into the policy of driving business?”
The average daily trading volume for the 1st Section in February 2014 was JPY 2.6 trillion. That was a fall from January when average daily turnover was JPY 2.85 trillion, a high point for volumes since May 2013.
Trading value for Japan’s exchange-traded fund market during the month was JPY 2.76 trillion, the third highest on record following December and January, but a 7% decline on the previous month. Total trading volume for the JPX derivatives market in February grew for the third consecutive month to reach 27 million contracts.
Average volumes in May 2013 had been just over $40 billion per day. That number halved in the summer months. Volumes have recovered since then, but are still approximately 35% down on that May peak.
“I don’t expect to see a repeat of May 2013 volumes, unless new macro factors emerge,” says Gefen.
Standing at over 15,000, the Nikkei 225 today is where it stood during that bumper volume month of May 2013. Given there has not been any strong directional trading, there has not been a marked imbalance of either buyers or sellers. That explains why daily volumes in Japan did not fall back to the US$10 billion levels of 2012.
The next phase of volume trends awaits some new developments. The optimism from Abenomics’ launch has long since faded and concrete evidence of change is now being looked for.“We haven’t seen anything earth-shattering either way,” said Gefen. “Regulations that kicked in last year are coming to fruition this year and I’d say that is taking up time for buy and sell-side, perhaps detracting focus from other things.”