By Paul Markham, global equities manager, Newton Investment Management
Despite the recent volatility, there are reasons to be optimistic about Japanese equities.
The weaker yen has provided a tailwind for the large export-led corporates – essential, given their status as among the largest taxpayers in Japan, to the repair of the government’s balance sheet – and has encouraged a significant uplift in inbound tourism.
Improvements in corporate governance and shareholder returns are also encouraging. We see these events as positive and remain constructive on Japan in spite of the hurdles it faces; and see stock picking as crucial.
In Japan, at least as much if not more than in other markets, differentiating between individual businesses can often yield strong results; and a weaker market, engendered by global risk aversion and a strengthened Yen, may represent an opportunity to add.
Japanese Government Bonds will remain well supported
By Nate Hyde, global macro team, Standish Mellon Asset Management
We expect Japanese Government Bonds (JGBs) to remain well supported as structural demand, combined with ongoing Bank of Japan purchases puts steady downward pressure on yields despite still high issuance.
One notable area of opportunity is the inflation-linked bond market as current break evens imply an unrealistically low amount of realized inflation over the next decade.
As the labour market continues to tighten and inflation trends higher, we believe the market will begin to recognize this fact and look for linkers to outperform their nominal counterparts.