Japan weiterhin am richtigen Weg?

The outlook for Japan remains positive and there are a number of factors to draw comfort from over the next couple of years. Michael Wood-Martin, Fund Manager of Japanese equities explains why. Janus Henderson Investors | 22.11.2013 09:05 Uhr
Archiv-Beitrag: Dieser Artikel ist älter als ein Jahr.

Since his return to power late last year in a landslide election, Prime Minister Shinzo Abe of the Liberal Democratic Party (LDP) and his advisers have unleashed a bold set of macroeconomic reforms designed to revive an economy that has lain dormant for almost two decades. The Bank of Japan (BoJ) has also joined in the effort; the new governor, Haruhiko Kuroda, announced an aggressive easing policy in April 2013 and raised the central bank’s inflation target to 2%, pledging to double Japan’s monetary base through buying long term bonds amongst other assets.

All this made for a lot of excitement in the ensuing months. The results can be seen in the meteoric rise in the stock market as the Nikkei leapt nearly 75%, beginning its stellar rise last November ahead of the landslide victory by the LDP and finally running out of steam in May. 
Source: Thomson Reuters Datastream, Nikkei 225 index, daily prices, 31 October 2012 to 8 November 2013.
Source: Thomson Reuters Datastream, Nikkei 225 index, daily prices, 31 October 2012 to 8 November 2013.

While the renewed confidence in the government and their policies drew investors in, an understandable pause followed. Some form of a correction in the Japanese equity markets was expected given the rapid rise in prices, a reversal in yen weakness and the possible change in the US Federal Reserve’s (Fed) approach to monetary stimulus announced in May.

Thus a period of consolidation began over the summer months as some foreign investors who had rushed in with overly high expectations withdrew, while the Japanese markets took a back seat to the better news coming from Europe and its periphery.

A brighter future
Source: Thomson Reuters Datastream, Japanese yen to US dollar (WMR) exchange rate, daily prices, 31 October 2012 to 8 November 2013.
Source: Thomson Reuters Datastream, Japanese yen to US dollar (WMR) exchange rate, daily prices, 31 October 2012 to 8 November 2013.
There are many reasons to be positive about the future of Japan. First, the political arena has stabilised. The key Upper House election win in July for the LDP has given Abe-san control of both houses of parliament for the first time in several years thus making it easier to implement policy. Abe-san’s popularity remains very high at 60-70%, and there is a three-year window until the next general election. The Bank of Japan is delivering on its promises too. 

Second, the economy has begun to show signs of a solid recovery. Japan’s gross domestic product (GDP) growth rose at an annualised 4.1% in Q1, driven in large part by strong consumer spending. In Q2, GDP rose at a much faster than expected 3.8%, helped by a marked improvement in capital expenditure. This was the third straight quarter of growth for the country. Reinforcing this the new deflation busting measures are working, the core-core consumer price index (a closely watched measure of Japanese deflation) stopped worsening for the first time in five years in September, while the official inflation rate reached 0.7% in the same month, recording the fourth consecutive month of increases. Additionally, recent Tankan surveys (the closely watched BoJ report) have revealed a sharp improvement in sentiment among Japanese manufacturers.

Third, there has been too much fretting about the sales tax rise — from the current 5% to 8% starting in April next year. Concerns that it will disrupt the economy are overdone. The corporations that we have met have indicated that they will pass on the increase. This is in contrast to the last VAT hike in 1997, when the costs were borne by the companies and this hit profitability. Moreover, the politicians are fully aware of potential disruptions from the tax increase and have fiscal budgets in place to offset any downturn in demand.
Cause for optimism

The outlook for Japan remains positive and there are a number of factors to draw comfort from over the next couple of years. The effects of Abe-san’s policies and the dramatic easing by the BoJ are yet to fully flow through the economy. The changes that are underway are of such magnitude that the positive impact on the economy could last many years.

As the Fed eventually begins tapering its asset purchases, this should encourage further yen weakness, which has in recent months given momentum to corporate earnings. Profits are expected to continue expanding over the coming years. Whilst further out Tokyo’s winning bid to host the Olympic Games in 2020 has also bolstered sentiment and gives the nation a tangible event to look forward to. The outlook for domestic wages is also improving as reflation spreads from the financial markets to the real domestic economy.
Away from the macro picture, another positive influence comes from new legislation passed in March, the Tax Reform Bill 2013, allowing for a Japanese version of the UK individual savings account (ISA) system. This should reinvigorate interest in the financial markets, and is likely to benefit financial intermediaries. Nippon ISA accounts are to be launched on 1 January 2014, with evidence of a significant number of applications to set up these accounts having been received.
Where to from here?

Given our strong belief that capital expenditure will increase and wages are on the rise, the bias of our portfolios remains to the domestic economy. We are overweight financials and domestic discretionary names, and by default, are light of overseas facing industrials and areas of the stock market that we consider expensive.

The profit outlook in Japan remains solid, perhaps even better than elsewhere in the developed world. Japan’s markets have fared well over the past 12 months and whilst a period of consolidation over the summer months might have proven frustrating, investors should not lose faith at this juncture as we believe that Japan’s road to recovery is only part-travelled.

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