With Japan so far out of favor among investors, is it a contrarian opportunity, or are we continuing to be fooled by the false allure of Japan’s potential?
2019 is likely to be a good year for Japan. However, there are some outlier scenarios investors may worry about. Improbable as they may seem, any movement toward their far-out direction will force a true about-face in the current consensus. Jesper Koll outlines 10 potential surprises for Japan in 2019.
The key issue for Japan’s 2019 outlook is not the hike in the consumption tax coming October 1 but the determination of “Team Abe” to present a new, urgent and credible structural reform agenda. Herein lies the key to unlock Japanese markets out of the current “value trap” consensus.
Japan is not a value trap. Our analysis suggests the probability of a sharp positive inflection in earnings visibility is about to be delivered in Japan, possibly as early as the upcoming fiscal half-year results season, which is about to get going by the end of October.
On Thursday, Japanese prime minister Shinzo Abe was re-elected as the ruling Liberal Democratic Party leader, winning by a very solid 70-30 margin against his one internal competitor. This bodes well for Japan’s economy in general, and Japanese risk assets in particular.
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Last week, Japanese prime minister Shinzo Abe presented an update on his economic policy priorities for 2016 and beyond. The new details of Japan’s “Abenomics 2.0” policy discussion suggest to us that structural growth policy is very much moving in the right direction, with Team Abe making concrete progress on building credible alliances with business leaders for his growth strategy.
The Bank of Japan decided to maintain its steady policy course this week, very much in line with consensus expectations. However, its policy statement did add a twist to a previously mentioned sentence.
Japanese risk assets—equities and real estate—are in a multi-year bull market, in our view. We are bullish on Japan because we believe the fundamental allocation of national assets—capital, land and labor—is beginning to change.
We expect added Bank of Japan action. A move as early as this week is possible—the BOJ policy board meets Oct 7, but I personally think that a move at the next meeting, on October 30, is more likely.
Pro-growth economic policy making is poised to make a comeback in Japan over the coming six to eight weeks, in our view. With the controversial new security bill now largely in the rearview mirror, “Team Abe” will want to re-establish economic policy-making credentials as quickly as possible.