A screen displays the Nikkei 225 Stock Average at the Tokyo Stock Exchange (TSE), operated by Japan Exchange Group Inc. (JPX), in Tokyo, Japan, Monday, October 30, 2023. Israel’s expanding land operations in Gaza added even more pressure to global markets as investors prepare for a busy week, filled with major central bank decisions and a high-stakes announcement regarding U.S. bond sales. Photographer: Akio Kon/Bloomberg via Getty Images
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But this time it’s different.
Property prices have not soared nationwide as they did in the late 1980s, and Japan has seen structural changes in 2023.
Companies performed better, in part thanks to a weaker yen, which made products more competitive.
Businesses are also spending more, with a June 23 Nikkei report indicating that capital investment by Japanese companies is expected to reach a record 31.6 trillion yen ($221.03 billion) in fiscal 2023.
The report said investment in the country, which accounts for about two-thirds of overall investment by Japanese companies, is expected to see double-digit growth for a second consecutive year. Their investments abroad could also increase by 22.6%, a third consecutive year of double-digit growth.
Foreign interest also played a role in the Nikkei’s outperformance, supported by billionaire investor Warren Buffet’s bullish outlook for Japanese stocks.
Foreign investors have found opportunities in Japan, thanks to a weaker yen and higher upside potential for stocks.
Dong Chen, head of macroeconomic research at private bank Pictet, said in June that global companies were diversifying their supply chains away from China, which could benefit Japan, “especially in very high-end sectors.” range and more technologically dense like semiconductors”.
““All these things are moving in the right direction, we think there are reasons to be more structurally positive about Japan than before,” he added.
The yen is expected to outperform in 2024, according to Peggy Mak, head of research at Phillip Securities Research.
The Japanese yen has weakened significantly since the start of the year, reaching 151.67 on October 31, its lowest level against the dollar since 1990. Since the start of the year, it has weakened by 7 .8%.
Mak now forecasts that the currency could strengthen against the greenback once interest rates begin to fall globally, with inbound tourism, rising real wages and high savings rates supporting the cash.
Yue Bamba, head of active investments for Japan at Blackrock Investments, believes the yen is undervalued and “has the opportunity to strengthen” over the next year.
“Our view on the currency is that we believe the yen is undervalued and may appreciate over the next few months, and that this is not detrimental to the stock market,” Bamba said.
Going forward, the Bank of Japan is expected to abandon its ultra-accommodative monetary policy and ease its yield curve control measures.
Under Kazuo Ueda, who was appointed BOJ governor in February, the bank relaxed the upper limit of its yield curve control policy, allowing yields on Japanese government bonds to rise above their record highs. 11 years old. The 10-year JGB yield reached 0.956% on November 1, its highest level since April 2012.
Ueda, however, reiterated his position that the BoJ would maintain its negative interest rate policy until its 2% inflation target could “be sustainably achieved.” The BOJ’s benchmark interest rate currently stands at -0.1%.
Japan’s nationwide inflation has soared above 2% for 19 consecutive months. So-called “core” inflation, which excludes the prices of fresh food and energy, stood at 4% in October, remaining above the 2% target for the 13th consecutive month .
“Japanese real wages are rising and the labor market is tight. Given Japan’s deflationary record, inflation is welcome and so far looks healthy,” said Ronald Temple, chief market strategist at Lazard Asset Management, in its 2024 outlook report.
The market will wait for the “formal end” of yield curve control, then attention will shift to when the BOJ ends its negative interest rate policy, Temple said.
Homin Lee, senior macrostrategist at Lombard Odier, believes 2024 will be a “strong” year for wage growth in Japan, saying demand for labor in the service sector is strong and worker confidence in their unions increase.
Lee pointed out that the Japanese Trade Union Confederation estimates a 5% wage increase in the spring 2024 wage negotiations.
“Indications for 2024 suggest that wage growth will be sufficient for the BoJ to consider ending the NIRP,” Temple said.
Wage growth in Japan will also support consumption and business investment, with Lee expecting the world’s third-largest economy to grow 1.2% in 2024.
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