Analysts Start Poking Holes in Japan Recovery

Going long on Japan’s economic revival story has been the consensus call, but more analysts are beginning to see weak spots in the plot.

Even though Japanese shares rallied nearly 60 percent in 2013, most analysts still expect solid gains from the market this year, despite the Nikkei falling nearly 3 percent so far in January.

Investors have been holding out hope that Japan will finally succeed at its decades-long struggle against the pressures of deflation on its moribund economy.

Abenomics – a series of policy measures, called “arrows,” unveiled under Prime Minister Shinzo Abe to jump start the economy – has seen some success. In November, the country posted a 1.2 percent on-year rise in inflation, marking a five-year high.

But some aren’t sure the recovery story will play out according to script.

The first two arrows, “monetary policy, fiscal stimulus, that’s all worked out,” said Herald van der Linde, head of equity strategy at HSBC. “That third arrow, we haven’t seen anything yet,” he told CNBC.

“We need to see more proof that structural reform is taking place,” he said. “I understand corporates are maybe considering increasing wages, but we don’t see any particular signs of this yet. I think it will be actually quite difficult to implement some of these reforms,” he added.

via Is the Japan story getting threadbare?

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza