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

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 Overseas buyers cooled on Abe in mid-2015 and have withdrawn funds again this year.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.