The Nikkei 225 index has surged to a four-year high, and the outlook remains bullish. Signs of recovery in the economy have cheered investors. After shrinking for two quarters, GDP stabilised in the fourth quarter of last year, and business and consumer confidence has risen.
Incoming central bank governor Haruhiko Kuroda is expected to print money aggressively, weakening the yen, which has already fallen to a three-year low against the dollar in anticipation of looser money and an eventual end to deflation. The falling yen has boosted stocks as it bodes well for heavyweight exporters’ earnings.
Global investors are piling in, buying $44bn of shares in the past four months. They haven’t been this enthusiastic since 2007, says Jake Lee in The Wall Street Journal. Some domestic individual investors have also joined the party. They now account for 30% of average daily volume on the Tokyo Stock Exchange, up from 20% last October.
Meanwhile, as Ben McLannahan and Alice Ross point out in the FT, Japanese households are also increasingly eyeing up foreign assets with appealing yields. That’s because the yen is set to weaken further, Japanese real interest rates are likely to fall and the global economy has gradually strengthened.
Indeed, analysts are pencilling in net outflows of retail investors’ money from Japan in the near future. This implies a further weakening in the yen. In addition, the market remains cheap. Add it all up, and Japanese equities, as Invesco’s Paul Chan puts it, are “in a sweet spot”.