Our current view on Japan comprises three main bearish elements, and three bullish ones. We will turn first to the bearish considerations.
Fiscal stimulus and central bank intervention possibilities
What markets here can learn from the Land of the Rising Sun
£15bn-23bn of losses could result in annual loss
Many investors are worried about the potential impact of the coronavirus. Only one case has been reported in Japan so far, though the authorities have quarantined a cruise ship with affected passengers on board.
Return of big banks and the end of austerity?
Japanese equities have been sensitive to weaker global industrial demand over the past 12 months, but we expect the earnings impact from the ongoing slowdown to bottom out by the end of this fiscal year.
2019 has been a stellar year for global bond markets, as weak global economic growth and low inflation have combined with ever more accommodative central banks to push global bond yields significantly lower.
Central banks to keep borrowing costs low
Recession due but will be relatively mild
Why are investors just not that into Japan?
Japanese stocks have lagged their global peers so far this year, as uncertainty over US-China trade frictions and the impact on the global economy have clouded the outlook for corporate earnings.
The policies and programmes that could protect a worldwide plunge
In an environment where no region presents an obvious opportunity from a valuation perspective in 2019, Japan offers investors the best chance to at least get access to a major market at something of a discount.
In the developed world, inflation expectation is noise
The Japanese equity market has seen net outflows in the past 12 months, with concerns over global growth and the trade war weighing on investor sentiment in the region.
Maintaining overweight position to the region
Japanese equities have been routinely shunned by global allocators for decades.
Attractive dividend yields
Economic surplurses also pose risks
The Japanese equity market will resume its ascent, buoyed by favourable political conditions, strong and evolving corporate reforms and continued monetary easing by the Bank of Japan (BoJ).
Navigating a volatile market