The Nikkei is close to its April 2008 peak after the yen fell to its lowest level in nearly four years following aggressive monetary measures announced by the Bank of Japan (BoJ).
The bold plans include increasing purchases of long-term Japanese government bonds, exchange-traded funds and real estate investment trusts, with the aim of hitting a 2% inflation target in two years.
“The BoJ’s actions are undeniably exciting and will continue to generate much comment as markets watch to see how the repercussions play out,” says Alex Treves, Fidelity's head of Japanese equities.
The weaker yen should boost the competitiveness of Japanese exports, aiding the country's struggling industrial sector. However, Treves notes that inflation will not mitigate productivity challenges on domestic goods, and may not address deeper problems that have allowed manufacturers in Korea and elsewhere gain a share of Japan's traditional export markets.
“Despite expectations of something radical and strong rhetoric since before [Shinzo] Abe’s election as prime minister, the market was still caught by surprise and long Japanese government bond yields and the currency both fell,” says Scott Thiel, deputy chief investment officer of fundamental fixed income, BlackRock.
Thiel speculates that rising Japanese bond yields will encourage money to flow from Japanese paper into other government bonds, including those in the eurozone.
Many investors have already put money into Japanese stocks. More than $10 billion (€7.7 billion) of net new money flowed into Japanese equity funds in the first quarter, according to data provider EPFR Global. This was a greater increase than these funds registered for the whole of 2012, though the data provider says it recently increased the number of Japan funds it tracks, which partly explains the rise.
US-domiciled Japanese equity funds accounted for 57% of the inflows so far this year compared with 26% for European-domiciled and just 16% for Japanese-domiciled funds – further evidence that the Nikkei is attracting investors from around the globe.
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