Japan Rises in Investors’ Estimations

(February 12, 2013) — Investors have cast off their bearish views towards Japan and have cited it as one of the most popular choices for equity investment, a survey of fund managers has shown.

A fifth of investors responding to the monthly Bank of America Merrill Lynch survey said the outlook for corporate profits was better in Japan than anywhere else. This figure was up from a net 4% who believed it in January.

Given this positive sentiment, a net 9% of respondents said Japan was the region they would most like to overweight. In December, 17% said it was their most likely underweight call.

“The Japanese equity market continued to rally at the start of 2013, following the bullish trend seen at the end of last year, on expectations that the new Abe government would implement his election manifesto policies,” explained Masashi Oda, CIO of the SuMi TRUST. “Since December, when the new prime minister pledged to implement policies such as aggressive monetary easing to stimulate growth, the equity index has soared while the yen has experienced a significant depreciation.”

This depreciation is set to continue, investors responding to the Bank of America Merrill Lynch survey said they believed, despite it falling near the International Monetary Fund’s estimate of fair value. The yen has weakened 25% against the euro and 17% against the US dollar since July 2012.

“A weakening yen means that the Japanese equity market continues to offer attractive investment opportunities, especially in export-orientated companies,” Oda said.

At the close of Japanese markets on Tuesday, the Nikkei was up 2.2%.

Jim Reid, a macro strategist at Deutsche Bank said this morning that the latest positive catalyst came from US Treasury undersecretary for international affairs, Lael Branaird, who said she was supportive of the effort in Japan to end deflation and “reinvigorate growth”.

“Markets appear to have interpreted Branaird’s comments to mean there will be no US Treasury interference if there is further yen depreciation,” Reid said, adding that the US dollar was approaching a three-year high against the yen.  “The Nikkei is also playing catch-up after being closed yesterday when Asia Development Bank president Haruhiko Kuroda, a candidate for the next Bank of Japan governor, commented that he thinks further monetary stimulus is justified in 2013 and after the economy minister said that he would like to see the Nikkei at 13,000 by the end of March.”