The Weekly Strategy ReportContributor Multi-Asset Solutions
- Japan’s upcoming snap election will likely end in a victory for the ruling party, but a small winning margin could lead to the resignation of Prime Minister Shinzō Abe, calling into question the future of his economic reforms. Under Abe’s leadership, underlying inflation has turned positive, corporate reforms have boosted profit margins and stronger earnings have driven stock market gains.
- The Bank of Japan’s (BoJ’s) extremely loose monetary policy, which now includes yield curve control, has helped depreciate the Japanese yen, driving up both inflation and exporters’ profit margins. But a new Prime Minister would likely replace Abe-appointed BoJ Governor Haruhiko Kuroda with a more traditional economist who could reverse many of Kuroda’s policies.
- We believe Japanese election risk is real but low. We retain our neutral position in Japanese Government Bonds (JGBs) and continue to overweight Japanese equities as a preferred market within our broadly diversified global equity exposure. Equity fundamentals are healthy, valuations appear attractive and investor flows are becoming more supportive.
EXHIBIT 1: THE JAPANESE YEN HAS DEPRECIATED ON EACH ROUND OF BOJ MONETARY EASING
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