2024-03-22 23:03:00
The Bank of Japan’s interest rate hike, the first since 2007, did not slow the record-breaking rise in the Japanese stock market. This is because corporate performance in both the export and domestic demand sectors is strong, and investors who are bullish about the future continue to feel secure.
Stock price board of a securities company showing the Nikkei average of 40,000 yen
Photographer: Soichiro Koriyama/Bloomberg
Although Japanese government officials have repeatedly warned that they will take action against excessive currency market movements, the ongoing depreciation of the yen is boosting profits in the export sector and leading to a boom in Japanese stocks. Furthermore, the Japanese economy’s shift from deflation to inflation, which prompted the Bank of Japan to raise interest rates, is positive for the domestic demand sector. However, unless wages continue to rise, rising living costs will eventually take a toll on household budgets.
According to the latest Asian fund manager survey conducted by BofA Securities, Japan is the most popular country among institutional investors due to its paradigm shift, with 67% of respondents expecting the Japanese economy to “become stronger” over the next year. ” I predict. On the other hand, due to the recent rapid rise in stock prices, most respondents in March answered “zero to plus 5%” regarding their expected return over the next year. In February, the most common response was “+5 to 10%.”
Additionally, BofA expects the earnings per share (EPS) of stocks included in the Tokyo Stock Price Index (TOPIX) to grow by 9% in the fiscal year ending March 2025 and 8.3% in the fiscal year ending March 2026.
BofA raises year-end target for Nikkei average to 43,500 yen – transition to inflationary economy
It is possible to confirm from various data that the Japanese economy is breaking away from many years of deflation and is entering a turning point. The Bank of Japan has decided to raise interest rates for the first time in 17 years, and figures such as the Consumer Price Index (CPI), which excludes fresh food, confirm that inflation is accelerating. In February, the Nikkei Stock Average hit its all-time high of more than 30 years, set in 1989, as global investors became more active in investing in Japan, partly due to changes in the shareholder return stance of listed company managers and the weakening of the yen. Updated for the first time.
Shigeharu Shiraishi, CEO of North Island Investment Advisors, who has been involved in Japanese stock investment for more than half a century, believes that if the Nikkei average reaches 45,000 yen, there is a very high possibility that it will reach the end of this year. It is rare for foreign investors and domestic investors to react favorably to Japanese stocks at the same time, and says, “In that sense, the supply and demand situation for stocks is improving.”
The next thing investors are concerned about is the timing of the Bank of Japan’s decision to raise interest rates further. According to a Bloomberg survey, about 62% of 47 economists expect the Bank of Japan to raise interest rates again by October.
Masanari Takada, quantitative strategist at JPMorgan Securities, analyzed, “If expectations for further rate hikes intensify in the short-term interest rate zone, it will have an impact on the future market environment.” In the stock market, “the Bank of Japan is likely to see an increase in additional interest rate hike trades,” which involves buying stocks related to domestic demand and selling stocks related to foreign demand.
It is clear that investors are targeting Japanese companies that will benefit from Japan’s economic growth. Ever Rich Asset Management, which specializes in investing in Japanese stocks, is considering additional investments in bank stocks and construction stocks even after the Bank of Japan lifts negative interest rates. The company’s Nippon Growth Fund, which has assets under management of 19.4 billion yen (as of the 19th), holds shares in major general contractors Obayashi Corporation and Kajima, and has outperformed 98% of competing funds this year.
Bank of Japan policy changes usher in an era of high growth, increasing purchases of bank and construction stocks – Ever Rich
Naoki Fujiwara of Shinkin Asset Management Investment Trust analyzed that, “As wages rise in Japan, real purchasing power will rise, which will bring great benefits to domestic demand companies.” Domestic demand-related sectors are expected to improve in the summer.
However, while the Bank of Japan has decided to raise interest rates, it has also indicated that it will continue purchasing government bonds and maintain low interest rates, which is why there is skepticism as to whether inflation will continue to take hold and Japan’s domestic demand sector will improve. It’s true. In fact, the yen’s depreciation has accelerated in the foreign exchange market since the monetary policy meeting on the 19th, when the Bank of Japan decided to raise interest rates.
Tomohiro Okawa, CEO of Chiken Oskar Group, an independent research firm, said, “Considering Japan’s national character, it doesn’t necessarily mean that people will start spending more just because their salaries have increased a little. ” he says. He cautions that if wages are forcibly raised in a situation where domestic demand is sluggish, the labor share will decline, “eventually putting pressure on corporate profits and profits.”
Monetary tightening could dampen domestic demand and reduce inflationary pressures by raising borrowing and investment costs, but corporate and household balance sheets are strong and governments have strong financing flexibility. , the rating agency Fitch Ratings said in a report that the impact would be limited in Japan.
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