Japan: still worth waiting for

We've been waiting for a catalyst to get Japan's stock markets moving for quite a while now. But we think it's worth it.

Regular readers will know that we have been keen on the Japanese stock market for far too long. It has been one of the cheapest markets in the world for a while now (if not the cheapest), and we have been waiting for a catalyst to make it start moving.

Back at the beginning of this year it looked like we might have one. "Japan catches the Bernanke religion", said Edward Chancellor in the FT, above a piece which outlined how the Bank of Japan (BOJ) had put out a "surprise statement" clarifying its "commitment to overcome deflation" in favour of "price stability", something it then defined as inflation at 1% a year. It then stepped up its version ofquantitative easingby 10trn.

Finally, it looked like Japan had decided to stop being the victim of everyone else's currency degradation (a strong yen is always bad for Japan's market) and to join in the currency wars instead. The yen tanked (down 7% against the dollar in the first quarter of this year), foreign investors piled in and stocks rose by a good 20%. We were happy. But as is always the case with Japan, we weren't happy for long.

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At the end of March, the eurozone crisis returned with a vengeance. The yen - thanks to its safe haven status (relative to everyone else at least) - soared. It was, as James Mackintosh points out in today's FT, the only one of 16 major currencies to fall against the dollar in the first quarter; it became the only one to rise since (up 4%).

And the market? It has proved to us all yet again that the only thing it cares about is the yen. Yesterday the Topix hit levels "seen on only 11 days in the past four years and before that not since December 1983". Worse, "even taking into account dividends and inflation, 1,000 invested in 1985 has made exactly nothing". It isn't quite as bad as it sounds, in that UK investors will have made a turn on the currency, but it isn't that great either. So what next?

Japan's fundamentals are good the balance sheet recession there at least is over. It is still the cheapest market out there. It is also worth noting that the BOJ is still targeting 1% inflation, and it is under a good amount of political pressure to make sure it hits its target. It has to keep going with its asset purchase programme.

So while some of you will mock, I know, we will keep waiting. After all, we aren't fund managers and neither are you we don't have to report quarterly gains, we just have to make real returns over the long term. That's something we still think we will do in Japan.

For more on this, see our latest cover story on the matter here: Why Japanese stocks are set to soar,and a more recent piece from our markets pages here: This takeover boom will light a fire under Japanese stocks.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.