How Japan is navigating the second stage of its economic rally

Stocks driven by fundamentals

The 2016 Japanese equity market saw a stark contrast between the first half and second half of the year. As 2017 gets underway, there are lessons to be learnt from the 2016 market as a guide for investors forming their strategies for this year.

In the first six months of last year, economic concerns, poor earnings by exporters from a stronger yen, and the impact on banks from negative interest rates drove equities lower.  Markets rallied in the second half as US President Donald Trump's fiscal expansion plans fuelled optimism for a stronger economy and higher inflation, which widened the interest rate gap between the US and Japan, and weakened the yen.  As a result, undervalued exporters and value stocks drove the markets sharply higher. However, this rise in export and value stocks was a one-time event and did not mark t...