Japan Story Intact, Despite Market Volatility

Press Release

28 February 2014
  • BOJ maintains its accommodative policy though markets expected more
  • Japan's GDP growth considerably better than reported

Japan's equity market weathered an onslaught of selling in February by global macro hedge funds who were disappointed that the Bank of Japan (BOJ) didn't accelerate its easing plan, according to a new research report from Nikko Asset Management (Nikko AM). As Japanese equities weakened and the yen appreciated, global risk markets dipped, though most rebounded quite quickly following the February trough. Risk markets will likely continue to be volatile through to the end of the second quarter, however, as underlying fundamentals remain intact, Nikko AM's view is to maintain its longstanding overweight on global equities, and Japanese equities in particular.

"In our view, Japan does not need a much weaker yen, nor does the BOJ have to add to its monetary easing plan to achieve decent economic growth or a positive equity market," said John F. Vail, Chief Global Strategist at Nikko AM's Tokyo head office. "In fact, as the yen stabilises and forex hedge losses dissipate, this should accelerate corporate profitability and push up Japanese stock prices. This would be a boon for U.S. dollar-denominated investors, who would benefit from the rising stock market without losing half the gains from yen weakness. Japan's Price-Earnings Ratio is very attractive, especially given the positive surprises in the current earnings season."

Japan's 2013 fourth quarter GDP growth was 1.0%, far below the consensus of 2.8%. However, Nikko AM's research suggests that Japan's GDP is greatly understated due to continuously falling inventories, and we expect that the figure will be revised upward. Assuming inventories had not declined, GDP growth in the fourth quarter would have been 3.4%. Despite such numbers, Japan had the highest year-on-year growth rate out of the G3 in both the third and fourth quarters of 2013, culminating in a 1.6% year-on-year growth for calendar year 2013.

Personal consumption in Japan also grew strongly in the fourth quarter of 2013 and should continue in the first quarter 2014, as buyers front-run the 3% VAT hike due in April 2014. We expect personal consumption in the second quarter to plunge following the VAT hike by as much as 13% quarter-on-quarter (seasonally adjusted annual rate) and minus 1% year-on-year, but will likely be reversed in the third and fourth quarters of 2014. This would lead to year-on-year growth in personal consumption being flat by the end of 2014.

Thus, we continue to believe that Japan's recovery is intact, and our forecast is for 5.3% GDP growth quarter-on-quarter (seasonally adjusted annual rate) in the first quarter of 2014 and 2.0% GDP growth for calendar year 2014.

– ENDS –

For inquiries, please contact:

Corporate Communications
Kyoko Wada, Naho Yohda
Tel: +81-3-6447-6775
Email: corpcom@nikkoam.com

Jo Nhan, Marketing Communications Manager
Tel: +852-3940-3939
Email: Jo.Nhan@nikkoam.com

Jeanie Cheah, Senior Marketing Manager
Tel: +65-6500-5793
Email: jeanie.cheah@nikkoam.com

About Nikko Asset Management

With USD203.9 billion* under management, Nikko Asset Management is one of Asia’s largest asset managers, providing high-conviction, active fund management across a range of equity, fixed income, multi-asset and alternative strategies. In addition, its complementary range of passive strategies covers more than 20 indices and includes some of Asia’s leading exchange-traded funds (ETFs).

Headquartered in Asia since 1959, Nikko Asset Management and its subsidiaries employ personnel representing around 30 nationalities, including approximately 200 investment professionals**. The firm has a presence through subsidiaries or affiliates in a total of 11 countries and regions. More than 400 banks, brokers, financial advisors and life insurance companies around the world distribute the firm’s products.

The investment teams benefit from a unique global perspective complemented by the firm's historic Asian DNA, striving to deliver consistent excellence in performance. The firm also prides itself on its progressive, solution-driven approach, which has led to many innovative funds launched for its clients.

For more information about Nikko Asset Management and to access its investment insights, please visit the firm’s homepage.

* Consolidated assets under management and sub-advisory of Nikko Asset Management and its subsidiaries as of .
** Including employees of Nikko Asset Management and its subsidiaries as of .

Important Information

Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets which are targeted by the fund is not necessarily indicative of the future or likely performance of the fund. Nikko AM Asia reserves the right to make changes and corrections to the information, including any opinions or forecasts expressed herein at any time, without notice. Nikko AM Asia accepts no liability for any loss whatsoever arising from any use of or reliance on any of the opinions expressed. Whilst Nikko AM Asia believes that the information is correct at the date of production, no warranty or representation, whether express or implied, is given to this effect and Nikko AM Asia expressly disclaims liability for any errors or omissions. The information contained in this document is given on a general basis without obligation and on the understanding that any person acting upon or in reliance on it, does so entirely at his or her own risk.
Nikko Asset Management Asia Limited, Registration Number 198202562H

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