60 seconds on why investors should keep faith in Japanese equities
The recent negative view of Japan is blurring the outlook for equity investors, but once the current uncertainty clears we see a positive outlook for Japanese equities.
Why investors should remain positive on Japan
Investors' view of Japan has become increasingly negative in recent months. That is particularly true among foreign investors.
Some of this is justified because economic data has been weaker than we expected, but we believe the underlying trend and the outlook for the rest of the year remains positive.
It is too early to say that the economic policies of the government and the Bank of Japan (BoJ) have been a failure.
The recent strength of currency has created some further uncertainty, particularly around the outlook for corporate profits, for the remainder of this year.
Once this current uncertainty is out of the way, we expect to see:
- Strong government spending to support the economy
- A possible postponement of the consumption tax increase currently planned for April 2017
- Strong policy support from the BoJ
- Upward revisions to corporate profits
- Continued improvement in corporate governance from Japanese companies
All of the above should provide a better environment for Japanese equities over the rest of 2016.
- Nathan Gibbs
- Monetary Policy