Japanese stocks set for best yearly gain since Abenomics jolt
JAPANESE stocks are poised to round out their biggest yearly gains in a decade as the weak yen, corporate governance reforms and signs of sustained inflation lured buyers.
The benchmark Topix is headed for an annual return of 25 per cent, and the Nikkei 225 Stock Average is set to post a 29 per cent rally. That’s the best performance since 2013, when aggressive monetary and fiscal easing policies fuelled hopes of a turnaround in the third-largest economy.
The world-beating indices are trading near the highest since 1990, boosted by investors seeking alternatives to Chinese equities and authorities’ push for companies to improve value.
The slump in Japan’s currency helped boost profits of exporters such as carmakers. Warren Buffett’s renewed endorsement drove trading houses’ shares to record highs.
“Japan’s stock rally this year is really quite meaningful,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank. “It’s a sign that we’re finally returning to a normal situation, a non-deflationary environment where the Bank of Japan’s monetary policy easing has likely supported the market.”
Investors may become even more bullish into 2024 given that the currency remains relatively cheap and corporate earnings have become less susceptible to foreign-exchange fluctuations, though some are cautious about near-term risks given lacklustre consumer spending and signs yen weakness may be over.
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Japan’s equity gains this year have outpaced peers in Asia. The MSCI Asia-Pacific Index rose less than 9 per cent as investors fretted about a slowdown in Chinese growth, as well as lingering geopolitical tensions, regulatory risks and fears of state meddling in the world’s No 2 economy.
This year’s rally is the best since the Topix jumped 51 per cent in 2013 on optimism that then prime minister Shinzo Abe’s policies, dubbed Abenomics, would give a much-needed jolt to the economy.
Those hopes faded in the ensuing years, especially as the Covid-19 pandemic stymied Abe’s goal of ending deflation.
Now though, there are finally signs of sustainable inflation, which has been about the central bank’s 2 per cent target for more than a year and half.
Financial stocks in particular have been beneficiaries of optimism that banks’ lending margins will improve. The sector has outperformed the broader Topix since the BOJ’s shock move to loosen its hold on yields just over a year ago fuelled bets of an end to the world’s last negative interest-rate regime.
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