Japan’s GDP report confirmed the de facto zero-growth status of the overall economy since the start of the new fiscal year (April 1). At the same time, the details of the report highlight several forces now in play that should affect forward-looking financial markets and policy makers.
Prior to Prime Minister Shinzo Abe coming to power in 2013 and the implementation of his aggressive fiscal and monetary policies, also known as “Abenomics,” Japan did not compare favorably to other major developed markets in terms of shareholder rewards, either dividends or buybacks.
Japanese investors have been accelerating their purchases of global securities at an unprecedented pace. The recent publication of July securities transaction data suggests net buying of global securities (equities and bonds) of ¥6.37 trillion, the biggest one-month outflow on record. In our view, this suggests that domestic monetary policy is actually hitting its target of forcing unprecedented portfolio rebalancing, out of yen and into global assets.
Japan remains a hotly contested market, with many investors not sure what to think about the current disappointing market returns as well as the BOJ’s lack of action. Japanese financials are a sector worth considering to supplement broader market positions in Japan on sharply depressed valuations.
Japan is back. After being practically the worst-performing equity market in the developed world in the first half of 2016 on the back of a strengthening yen, Japan has rallied strongly from its post-Brexit bottom in anticipation of a large, creative fiscal package.