It has been over a year since Japanese prime minister Shinzo Abe began to implement his ‘abenomics’ plan of aggressive monetary policy.
With the Japanese public now having had time to adjust to a newly introduced savings culture – as Abe tries to implement his “third arrow” of Abenomics and instil cultural reform – some believe a reinvigorated domestic market could spur the equity market to climb to 17,000 by the end of the year.
Julius Baer head of Asia research Mark Matthews says: ”In Japan, while the prospects for additional easing by the central bank are dim, we upgraded our Nikkei forecast to 17,000 based on the expectation of rising earnings and a fair value Price-earnings ratio of 15.5 times.
“Japan could be on the cusp of a large increase in domestic spending as savings are deployed amid the arrival of inflation, adding a missing dimension to Japan’s economy.”
However, Charles Stanley investment director Douglas McNeill is sceptical that the Japanese Nikkei – that has been middling between 15,000 and 16,000 since June – will be able to catch up with other economies.
McNeill says: “We think that the short term outlook for the Japanese equity market is promising. In the long term the outlook is not so good, due to demographic issues and a dim GDP outlook.
“I would not be confident of the Nikkei hitting 17,000 as the headwinds facing global equity markets are just too strong.”
Hermes Fund Managers chief economist Neil Williams expects Japan to struggle to become used to increased domestic spending in wake of changes to the country’s tax framework but is not too pessimistic over falls seen in the Nikkei.
Williams says: “The government is trying to get people to spend while they have just raised the consumption tax. There is a risk of a prolonged slump in the aftermath of this consumption tax. Japan has been in a 15 year deflationary environment and there is a certain psychology with this.
“Given the surge Japanese equities saw last year it would be safe to assume some of these 2014 drops are due to profit taking as global markets head towards rate rises and the volatility this could cause.”