Japan shares up as G20 statement stokes weak yen hopes

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Last Updated at 21 Dec 2014, 20:45 ET Nikkei 225 one month chart
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Japanese shares have risen after finance ministers of the G20 group of nations avoided singling out Japan for criticism over the recent yen weakness.

The yen has dipped nearly 15% against the US dollar since November amid Japan's efforts to stoke inflation.

There were concerns that a criticism from G20 may prompt Japan to alter its aggressive stance. The fears were that it would result in the yen rising again and hurt Japan's plans to spur growth.

Japan's Nikkei 225 index rose 2%.

Meanwhile, the Japanese currency continued to weaken. It fell 0.6% to 94.12 yen against the US dollar.

It also dipped 0.5% to 125.50 yen against the euro in early Asian trade.

"At the G20 meeting, there wasn't as much criticism from emerging countries about the recent yen's weakness as feared. That spurred yen selling," said Kyoya Okazawa, head of global equities at BNP Paribas.

Further weakness?

Analysts say the G20 communique at the end of its meeting in Moscow on Saturday was an endorsement for Japan's recent monetary moves.

The policies have seen Japan's central bank, the Bank of Japan, double its inflation target to 2% in attempt to spur domestic consumption.

The central bank has also expanded a key stimulus measure aimed at keeping long term interest rates low.

Analysts say that as Japan continues to pursue these policies, the yen is likely to weaken further.

Japanese Yen v US Dollar

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"With Japan, as yet, using various measures to ease monetary conditions domestically, we do not expect a large international backlash against its efforts and look for the Japanese yen to continue to decline gradually as the easier monetary conditions feed through," Barclays Capital said in a note.

A weak yen bodes well for the Japanese exporters and its economy on various fronts.

To begin with, it makes their goods more affordable to foreign buyers. It also helps boost the exporters' profits when they repatriate their foreign earnings back home.

And as firms see their profits rise, they are likely to have a bigger cash pile to invest in research and development or expansion of their facilities.

Investment in research helps the firms become more competitive as they develop new products. Meanwhile, increased capital investment helps boost Japan's overall economic growth.

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