Can Japanese equities keep rising?

After more than three decades, Japanese equities have hit record highs, but does the asset class have more room to run?

Zurich head of macroeconomics Guy Miller says: “I have been in markets since 1991 and I was on the US equity desk, and back then everyone was bullish on Japan. Any money people made in US equities back then was deployed into Japanese equities. It has taken 34 years to get back to the record level.”

“Two things have really happened there — one is the weakness of the yen, that has been a big factor. The second is around corporate governance — the unwinding of cross shareholdings and better use of shareholder capital. None of those things are particularly new, but it’s a case of a lot of things coming together.”

Yen weakness has the effect of boosting the earnings potential of Japanese exporters, and enhancing the returns available to those whose primary currency is not the yen.

Morningstar Investment Management chief investment officer Mike Coop has been taking some profits on Japanese equities, but remains keen on the asset class. 

Third arrow of ‘Abenomics’

He told FT Adviser: “Japan’s reforms have been happening for the past seven or eight years, and we have been overweight to there for a good while. The reforms that are making a difference now were the third arrow of the ‘Abenomics’ policies announced in 2012, but it has taken this long for the market to realise the change that is happening.” 

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