Japan and Abenomics

Since the introduction of the new Prime Minister Shinzo Abe, the Japanese equity markets have reacted strongly to his dovish views and determination to move the economy out of over a decade of inflation.

Since commencing ¥13.7tn of Quantitative Easing (QE), the Yen has depreciated significantly falling approximately 14% against the USD.  Japan is a large exporter and this currency depreciation has increased confidence that profits from companies such as Toyota and Sony will react strongly. 

Although initial actions have been positive, a lot must be done to solve the countries underlying debt problems and ageing population dependencies.  With Debt to GDP of over 220% (compared to Greece at 170%), aggressive monetary policy is needed to kick start the economy.   

The recent addition to Abe’s entourage is the new chief of the Bank of Japan, Haruhiko Kuroda.  He follows suit in his aggressive views on more monetary stimulus, and many expect further QE in late Q1 or early Q2. 

We should start to see effects on the Japanese economic data in late April as QE and currency depreciation take effect.

Over the past few months foreign investors have been spurred back into the market as inflows into Japanese mutual funds have increased significantly.

Myself and many others are certainly on-board with Abenomics and I will be keeping a keen eye on the Japanese market in the coming months.

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