The strength of this phase of growth is due to the
\nfact that it is not driven by the improvement in world
\ntrade alone, as was the case for all the Japanese
\neconomy\u2019s false starts over the past two decades,
\nbut rather it is the result of synergies uniting the
\nthree arrows of Prime Minster Shinzo Abe\u2019s economic
\nprogram (fiscal stimulus, monetary easing, structural
\nreforms). <\/p>\n
Monetary policy is based on three areas (QE,
\nnegative policy rates and control on the yield curve)
\nto keep the yen weak and long-term rates low
\ndespite a continued unsustainable budget deficit
\n(public debt was monetized at 45%). Reforms to the
\nlabor market promote immigration and increase the
\npresence of women in the workforce, thereby
\nensuring that Japanese companies maintain wide
\nmargins despite achieving full employment with
\nunemployment at a mere 2.8%. <\/p>\n
Lastly, incentives for financial institutions to make For now, the Bank of Japan\u2019s failure to push up Valuations for Japanese equities are attractive in our Risks on this position are primarily political. Japanese Meanwhile, geopolitical threats remain. Japan\u2019s trade Japan posted growth of 1.5% in the first half of theThis economic policy has its limits: we are far from
\nthe 2% inflation target, which makes the economy
\nvulnerable to a return to deflation in the event of an
\nexternal shock.<\/quote>
\n The improvement in public finances is
\npushed back, while the ageing population points to
\nan erosion in the country\u2019s external assets (currently
\n65% of GDP). Tax adjustment targets households via
\nincreases to VAT, while corporation tax rates have
\nbeen severely cut from 40% to 30%, further bloating
\ncorporate margins that are already substantial. <\/p>\n
\ntheir portfolios more international are a double-edged
\nsword: on the one hand, they could trigger
\nuncontrollable capital outflows in the event of a loss
\nof confidence in monetary policy if inflation
\nexpectations suddenly soar; on the other hand, Japanese banks have become the largest eurodollar
\nlenders in the world, exposing them to a potential
\nsqueeze on dollar liquidity (Quantitative Tightening
\nfrom the Fed). <\/p>\n
\ninflation expectations paradoxically safeguards from
\nthe risk of outflow for the yen and JGB. Furthermore,
\ncapital outflows are restricted by the renewed Japan
\npremium on dollar-yen forex swaps, which reduces
\nthe appeal of US bonds once the cost of forex
\nhedging is factored in.<\/p>\nSo Japanese growth is particularly robust and slanted
\nin favor of corporate profits (wage inertia). It is
\ntherefore not surprising that projected earnings
\ngrowth for listed companies is more than 10%.<\/quote><\/p>\n
\nview (Price to Book of 1.4 at fair value, P\/E 14x vs.
\n16x in our model). Lastly, the Bank of Japan
\ncontinues to buy equities via ETF (JPY6tr in three
\nyears). We therefore overweight Japanese equities in
\nour multi-asset portfolios.<\/p>\n
\ngrowth hinges on momentum in China, but a blip in
\nthe Chinese cycle seems improbable in the short
\nterm with changes in the make-up of leadership
\nduring the Communist Party Congress. However,
\nelections on October 22 have already had an impact
\non Japanese economic policy: the emergence of a
\nnew opposition led by the governor of Tokyo, Yuriko
\nKoike, forced the government to make fresh fiscal
\npledges (half of the revenue derived from the hike in
\nVAT in 2019 will go to the education budget).<\/p>\n
\nsurplus, inflated by the weak yen policy, could attract
\nire from the White House, as it did during Reagan\u2019s
\nVoluntary Export Restraints. Lastly, Japan is exposed
\nto the risk of an escalation in the North Korean crisis:
\nthis issue is a systemic risk for all risky assets
\n(equities, credit), which we partly hedge via our
\nexposure to gold and the dollar.<\/p>\n","protected":false},"excerpt":{"rendered":"
\nyear, which is a remarkable performance for an
\neconomy with estimated potential of no more than
\n1%. Expansion in the Japanese economy is propelled
\nby all drivers of private demand: exports, productive
\ninvestment, household spending. <\/p>\n","protected":false},"author":1,"featured_media":66796,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1655,2073,1943,1651,2087,2068,1678],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/66798"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=66798"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/66798\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/66796"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=66798"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=66798"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=66798"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}