Japanese Stock Prices Still Considered Cheap Continue Posting Records

Many major exporters — Toyota (TM), for example — had banner years in 2014, and even legacy electronics firms like Hitachi, Panasonic and Canon were able to hike profit forecasts.

A strategy change at Japan’s $1.2 trillion pension fund has also helped. Last year, the Government Pension Investment Fund decided to reduce its bond purchases and roughly double its holdings in foreign and domestic stocks.

The role of the yen remains a background factor. Despite its relative stability this year, the currency has declined sharply against the dollar and is trading near a seven-year low. That means Japan’s exporters have been getting a nice profit boost when they sell goods abroad.

Some investors are questioning how long the rally can last. After all, the Nikkei has popped over the 20,000 point mark on several occasions, only to crash back to earth. In the late 1980s, a particularly notable bout of “irrational exuberance” pushed the index to an all-time high near 40,000.

The best chance for sustained success is Abenomics, the economic revival plan championed by the prime minister. If he is able to push through reforms, and force Japan Inc. to break some of its bad habits, markets will have a real reason to cheer.

While legislation is pending, the central bank will do its part. Many analysts expect the Bank of Japan to expand its stimulus program further in coming months.

via CNN

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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