Nervous investors miss out on Japan's biggest stockmarket rise in 26 years

Next year is expected to be a good one for household spending

(Image credit: © Naoki Nishimura/AFLO/Alamy)

published 12 December 2020

Japanese prime minister Yoshihide Suga has announced a new ¥73.6trn (£532bn) stimulus package, the country’s third so far this year. About ¥40trn (£289bn) will go towards furlough programmes, hospitals and incentives for green investment. The stimulus takes the total spent on the country’s virus to 14% of GDP.

Japan has so far dodged the worst of the pandemic, but the latest wave is its most serious, says William Pesek for the Asia Times. Japan has a serious “pre-existing condition” – about 30% of the population are aged over 65 and that proportion is rising. The debt-to-GDP ratio is more than 230% and is climbing towards 250%. “Massive national debt, a plunging population, and now, a resurgent pandemic… talk about a grim convergence.”

Upside in view

The “outlook for Japan is actually not looking too bad”, writes Robert Carnell for ING Think. More women participating in the workforce and longer careers have mitigated the “worst fears” about an ageing population. The government has been forced to step in with extra fiscal support because the Bank of Japan has run out of firepower; the central bank now owns “more than 50%” of all government debt. Its $433bn share portfolio also makes it the country’s biggest stockmarket investor. ING expects GDP to contract 5.4% for 2020 as a whole and for the economy to regain its pre-crisis level in late 2022.

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Japan’s Nikkei 225 index gained 15% in November, its best monthly showing since 1994. But it remains about one-third short of its 1989 all-time peak. The Topix, which is a more accurate (if less famous) gauge of the stockmarket, is up by 3.5% so far this year.

British investors pulled £145m from Japanese funds in September, according to Investment Association data, says Jayna Rana for the Daily Mail. The wobble may have been induced by Shinzo Abe’s resignation as prime minister. They are missing out. A pro-shareholder culture is slowly taking hold thanks to Abe’s reforms, while Suga is now pushing digitalisation in a country still attached to fax machines.

The Nikkei 225 index has outperformed the US market in dollar terms this year, but few international investors have noticed, writes Mike Bird in The Wall Street Journal. Overseas buyers cooled on Abe in mid-2015 and have withdrawn funds again this year. Yet 2021 is expected to be a good year for cyclical stocks, such as industrials and consumer discretionary, which comprise “almost 40% of the MSCI Japan” index. Japanese firms also have less leverage than their overseas counterparts, which gives them a strong cash buffer for dividends – Japan yields 2.3%. When global investors cotton on, the market could soar.

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.