With easier monetary and fiscal policies now in place and the stock market having risen substantially over the past several months, what else could be in store?
The answer is rather a lot. Bank lending is expanding (reversing a long-term trend of contraction) as the housing market recovers and as corporates borrow more. Profits are recovering sharply in response to the weakening in the yen and as activity recovers, which in turn is beginning to filter through to a rise in wages. A loose monetary policy, which has yet to fully run its course, should propel activity further. On the political front there is much debate about the forthcoming rise in consumption tax (VAT) to be implemented next April. As an offset to any disruption to economic activity from the tax increase the government is already proposing tax incentives for capital expenditure and a supplementary budget. What’s more, the government is also considering a cut in corporation tax to enhance the attractiveness and effectiveness of the Japanese corporate structure. This government is much more ‘hands-on’ than before and signals a commitment to getting Japan moving forward.
Granted, the stock market has enjoyed a tremendous run. Gains from here will be harder earned but with the commitment from the authorities resolute, an advantageous currency level and a corporate sector enjoying the fruits of prior restructuring efforts, the outlook for Japanese equities remains encouraging.
Michael Wood-Martin is manager of the Henderson Japan Capital Growth Fund and the Henderson Horizon Japanese Equity Fund
These are fund manager views at the time of writing and may differ from those of other Henderson fund managers. The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional investment adviser.