That strategy, designed late last year by Prime Minister Shinzo Abe, calls for a mix of government spending and monetary easing, along with some economic reforms. The markets initially welcomed Abe’s plan, but they now seem preoccupied with the risk it carries. This also holds true for Japan’s normally sleepy bond market, which has fluctuated heavily in recent weeks.
One of the biggest fears is that Abe, in his attempt to spur inflation, could leave the government in even greater debt and pressured by rising interest rates. Some critical economists and investors also say that Abe’s reform targets — improving opportunities for women, creating special economic zones, liberalizing trade — sound similar to failed ideas from earlier Japanese leaders.
Some investors are worried that the yen — which had weakened for eight straight months entering June — could reverse course, eating into the profits of Japan’s export-dependent giants.
Stocks across Asia fell Thursday, but the losses were most significant in Japan, as the yen strengthened more than 1.5 percent against the dollar. As of early evening in Tokyo, the yen stood at 94.4 to the dollar, compared with 103 to the dollar in late May. The fortunes of Japanese stocks are heavily tied to the yen, which, when it weakens, lowers the cost of Japanese products sold overseas.
During trading Thursday, Japanese officials asked for calm, adding that the nation’s economy showed clear signs of recovery. Even with the latest stock losses, the Nikkei is up nearly 40 percent since November, when it became clear that Abe’s Liberal Democratic Party would win parliamentary elections.
“There has been a steady recovery in the economy of Japan,” a government spokesman, Yoshihide Suga, said. “So regarding the stock market situation, we believe we need to stay calm in observing this state.”
Government data released last month indicated that Japanese consumers were spending more, an encouraging sign for the economy. They were doing so even though few companies had given raises. Few consumers, too, had personally benefited from the stock rally. (Only about one in six Japanese owns stocks.)
Rather, economists said, consumers were feeling a psychological high from the Nikkei’s rise. Some worry that the spending could stop amid the plunge.
“People might start to think, ‘Oh, this [recovery] is going to collapse,’ and they might then say, ‘Oh, I can’t buy things.’ ” said Edwin Merner, president of Atlantic Investment Research in Tokyo. “It could have a big psychological impact.”