Wednesday, 4 April 2012
Nikkei follows US interest rates
No equity market (including the S&P500) follows so slavishly the US interest rates as the Nikkei Dow Jones. When the yield on 10 year Treasuries risies with 0.01%, the last years the Japanese equities rise on average 0.17% (above the normal rise of about 3% in six months).
So when you make the forecast that the (US) interest rates will rise you also forecast that equity market will go up (17 times as fast in Japan and about 12 times as fast in the US for example)
It looks like we have seen the best of the rally in the past months in Japan. When the Japanese equity market cannot follow enough the rise of US interest rates you often will see troubles. That is a bit odd, when equities seem to cheap you should sell. The reasoning behind that is the rule that when markets no longer react on good news you have to sell (and the other way around).