Fund managers back Japan fiscal easing
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Japanese fund managers are supportive of the Bank of Japan’s (BoJ’s) surprise decision to increase its quantitative easing programme while simultaneously setting inflation targets for the first time.
However, they are divided on how effective the moves will be.
Last week the BoJ announced it will increase its asset purchasing programme by ¥10 trillion (£82 billion) to ¥65 trillion, while taking a firmer stance against the deflation of the past 15 years by setting an inflation target of 1% for the short term and less than 2% for the long term.
“This is good news for Japanese equities. The Bank of Japan showed that it is prepared to do more in support of the economy,” says Simon Somerville, the manager of the Jupiter Japan Income and Japan Select funds. “An increase in money supply means the yen should weaken further from the recent record levels against the US dollar and the euro. The yen’s relentless rise in the last five years has made it increasingly difficult for Japan to export its products, hurting Japanese exporters’ earnings,” he adds.
Last week the yen fell to a four-month low against the dollar, with the dollar above ¥79, while the Nikkei 225 index rose 1.6% to 9,384.17, its highest close since August 4.
However, Chern-Yeh Kwok, the head of Japanese equities at Aberdeen Asset Management, questions the long-term effectiveness of the latest fiscal injection. “The increase in money means Japan’s currency will depreciate, which it has done in last few days, so it is a boon to exports – the share prices of exports are doing well,” he says. “But we wonder what will happen to the yen in the long term, as the Bank of Japan has done this before, and it hasn’t worked.”
“The Bank of Japan is in fighting pose,” says Erina Jindai, a client portfolio manager of Japanese equities at JP Morgan. “We are now not expecting significant appreciation, or depreciation, this year.”
Meanwhile Somerville remains upbeat. “We have been waiting for the BoJ to target inflation explicitly,” he says.
“Not only would a return to inflation make it easier for domestic companies to expand margins but it should also help weaken the yen and prompt investors to switch into equities from government bonds.
“If the BoJ’s measures succeed in raising consumer prices, this could be the catalyst the market has so long been waiting for.”
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