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Japan Government: Nikkei Plunge Temporary, Won't Derail Abenomics

Japanese Prime Minister Shinzo Abe
Kazuhiro Nogi | AFP | Getty Images
Japanese Prime Minister Shinzo Abe

The biggest plunge in Japanese stock prices since a 2011 earthquake and tsunami was a temporary pullback that will not derail the government's "Abenomics" policy of loose money and fiscal stimulus, officials said on Thursday.

"It's a temporary adjustment after the rapid gains seen recently," Yasutoshi Nishimura, senior vice-minister of the Cabinet Office, told Reuters.

He expressed hope the slide "will give a buying opportunity for investors who could not take part in the market so far".

The benchmark Nikkei stock average plunged 7.3 percent, the biggest slide since the March 2011 natural disaster, which caused a nuclear disaster.

(Read More: Mammoth Japan Stimulus Still Not Enough: Hayman's Bass)

Nikkei futures sank a further 2.8 percent in after-hours trading.

Prime Minister Shinzo Abe's sky-high public-approval ratings have been buoyed by the spectacular rally in Tokyo shares to a string of 5 1/2-year highs.

Senior officials showed no outward signs of concern at the arresting plunge and said the drop did not signal investors had lost faith.

Market participants agreed the sharp turnaround was triggered by weak Chinese factory-output data, not concern about Japanese policies, turning a morning Tokyo rally into an afternoon rout. The 1,143.28-point decline, to 14,483.98, was the 11th-largest point drop on record.

The yen, near 4 1/2-year lows, rebounded sharply against the dollar and euro, and the 10-year government-bond yield pulled back from a morning rise to a one-year high over 1.0 percent.

(Read More: US-Based Japanese Stock Funds Up $1.5 Billion in Record Inflow Streak)

The stock market was up as much as 1.5 percent in early trade, brushing off comments by Federal Reserve Chairman Ben Bernanke that were seen as presaging a possible early end to the Fed's monetary easing.

Despite Thursday's plunge, the Nikkei remains up 4.5 percent this month and a full 67 percent since mid-November, when it became clear that Abe was likely to become prime minister and implement his aggressive stimulus plans.

The market's impressive run-up "was not a bubble", said Nishimura.

'Sense of Accomplishment'

Chief Cabinet Secretary Yoshihide Suga said: "There will be no change of direction" for Abenomics.

(Read More: Does Asia Slump Signal US Dump or Correction? Pros Analyze)

"Japan's economy is expected to gradually head for a recovery, and we hope to closely watch market developments," Suga, the top government spokesman, told a regular news conference.

Economics Minister Akira Amari insisted that "there is no need to be flustered" by the drop.

Abenomics, especially last month's massive monetary easing by the Bank of Japan has cheered investors in the outlook for the export-reliant economy and boosted personal spending.

But the improvement remains fragile as it has yet to translate into stronger capital spending by companies or wage increases, considered drivers of a durable recovery.

(Read More: Japan's Monetary Policy a 'Big Experiment')

"The backdrop for the sharp fall in share prices is that since the birth of the Abe government, prices have been rising at quite a clip and when the critical level of 15,000 was broken, there was a sense of accomplishment," said Yuuki Sakurai, president of Fukoku Capital Management Inc.

"When the market is rising, it's easy to overestimate good news and underestimate bad news," Sakurai said. "In a phase where people are buying everything but the kitchen sink, it's easy to go into a correction. I don't think this is turning into a bear market."

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