Buy in to Japan's new dawn

Overseas investors were net sellers of Japanese stocks last year. But Japan is entering a new era of “beautiful harmony”, and investors should get on board.

945_MW_P05_Markets

Brewer Asahi has increased production for the ten-day holiday

Japan is entering a new era of "beautiful harmony", says Justin McCurry in The Guardian. Japanese emperor Akihito abdicated this week in favour of his son, ending the country's "Heisei" imperial era that began in 1989. Crown Prince Naruhito's ascension to the Chrysanthemum Throne marks the start of the new "Reiwa period", which roughly translates as "beautiful harmony".

The outgoing era will not be fondly remembered by investors, says Tom Stevenson in The Daily Telegraph. Japan's stockmarket bubble peaked in the first year of Emperor Akihito's reign. After thirty years of "protracted deflation", the Nikkei index is still valued at just over half its 1989 high.

Consumers put to the test

"If spending fizzes", then policymakers will be reassured that the economy can withstand a 2% sales tax hike scheduled for October. "Everyone agrees that a higher sales tax is needed," says The Economist. At 8% the current tax is low by international standards, and strained government coffers could do with a boost. The trouble is that a previous increase in 2014 "provoked a sharp downturn".

Even if spending dips owing to the tax, however, the medium-term outlook for consumption, which accounts for roughly 55% of overall GDP is good. Unemployment stood at 2.5% in March, down from more than 5% at the start of the millennium and comparable to the rate in the early 1990s.

Low unemployment is "leading to real wage growth and rising consumer confidence", says Stevenson. Reforms passed under Prime Minister Shinzo Abe have finally drawn the curtain on the "lost decade of deflationary stagnation". Yet spooked by previous disappointments, "overseas investors were net sellers" of Japanese stocks last year.

An unloved market, however, is a cheap one. Market index provider MSCI reports that Japanese stocks are trading on 13 times trailing earnings, compared with a global average of 18. What's more, says Mark Atherton in The Times, corporate governance has been progressively reformed, while Yuichi Alex Takayama of Nikko Asset Management notes payouts to shareholders are "thought to have doubled over the past five years". Japan is moving in the right direction. Our favourite plays include the Baillie Gifford Japan trust (LSE: BGFD) and Fidelity's Japan trust (LSE: FJV).

Recommended

Three strong Asian stocks trading at bargain prices
Share tips

Three strong Asian stocks trading at bargain prices

Professional investor Nitin Bajaj of the Fidelity Asian Values investment trust picks three stocks that dominate their industries, earn good returns o…
20 Sep 2021
Kieran Heinemann: the history of shareholder capitalism
Investment strategy

Kieran Heinemann: the history of shareholder capitalism

Merryn talks to Kieran Heinemann, author of Playing the Market: Retail Investment and Speculation in Twentieth-Century Britain, about the history of t…
17 Sep 2021
Why it pays to face up to your investment mistakes
Investment strategy

Why it pays to face up to your investment mistakes

Buying stocks can be a complicated business. But selling stocks can be tricky, too – even if you sell for the right reasons. Max King explains how to …
17 Sep 2021
Are stockmarkets heading for a fall?
Stockmarkets

Are stockmarkets heading for a fall?

America’s S&P 500 stockmarket index has gained 30% over the past year. Valuations may be high, but that doesn't necessarily mean investors should sell…
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021