It’s time for cautious optimism on Japan
Mar 16, 2012
Japan’s Nikkei 225 index has looked unusually sprightly of late, gaining 22% since November. One of Japan’s smaller markets, the Tokyo Stock Exchange Second Section, has set a new record for the consecutive number of days on the rise. The previous one was set in 1975, in the early stage of a long-term bull market, says Robert Brooke of Halkin Services.
The fundamentals have improved too. Japan’s major trading partners may be suffering from “anaemic growth, at best”, says Lex in the FT, but rebuilding from the tsunami will bolster domestic businesses and fix disrupted operations for exporters.
Capital expenditure is picking up as businesses have started to bounce back from the disaster. James Simms of The Wall Street Journal notes that the operating profits of car, electronics and machinery manufacturers are set to rebound above pre-disaster levels over the next year.
“Corporate Japan has proven remarkably resilient.” The weakening yen has buoyed optimism among exporters, who are stockmarket index heavyweights. In sum, a “moderate” economic recovery is on the cards, says Junko Nishioka of RBS Securities. Goldman Sachs has upgraded its 2012 growth forecast for Japan to 2.1%.
A key reason for the weaker currency is “the arrival at the quantitative easing party of the bank of Japan”, says Fidelity’s Tom Stevenson in The Sunday Telegraph. Printed money, with the prospect of further doses, and a weaker currency are good for equities. Stocks too are historically cheap: the wider market is on a cyclically adjusted price-to-earnings ratio of eight. It’s time for “cautious optimism”.
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