With investors enjoying compelling profits since the election of Shinzo Abe as Prime Minister in late December 2012, Nathan Levesque, Head of International Research at Ephraim Global asks if it’s a good idea to move on to the next investment trend or remain invested for future results. In order to answer this question he has identified four reasons why Ephraim Global considers Japan as one of the main countries to invest in over the next years:

1 – Political stability supports efficient reforms
2 – Abe-nomics
3 – Strong support from the Bank of Japan
4 – The ‘weak’ yen strengthens profitability and asset worth

1. Political stability support efficient reforms

Upon his election as Prime Minister of Japan, Shinzo Abe brought back a feature of political capital which has been disregarded for many years, namely popularity; consequently this has brought on a period of political stability which has been uncommon within the last decade considering that between 2006 and 2012 Japan has seen 7 Prime Minister trading seats and very few reforms taking place. Amidst this period of political uncertainties Shinzo Abe’s landslide victory in 2012 has paved the way for a much needed economic reform, also known as Abe-nomics.

Despite the fact that his approval ratings have fallen from very high levels since the beginning of his term (above 70%), the Prime Minister called for early elections in order to secure his power with the expectation of re-election, thus furthering his time in office which in turn extends the timeframe and the needed stability to concentrate on future reforms.

2. Abe-nomics

The three strategies set in place to prompt economic development are fiscal stimulus, monetary easing and structural reforms, and while the first two strategies were rather easy to implement, although disheartening on the short-term for investors holding risk assets, the last strategy will take a longer time to be enforced and even longer before it seriously makes an impact on the economy. Even though the debates on the success of Abe-nomics are still raging on, Mr. Levesque considers that patient investors will reap the benefits of their persistence as long as Japan remains committed to reforms.

3 – Strong support from the Bank of Japan

One of the first actions in Mr. Abe’s new role as Prime Minister was appointing Haruhiko Kuroda as the governor of the Bank of Japan. As a staunch supporter of strong monetary easing, Mr. Kuroda’s installment represented the first step in the central bank supporting the development of the national economy by targeting a weaker yen.

In terms of implementing the second of the three strategies, Haruhiko Kuroda has proven his eagerness to initiate significant quantitative easing programs, which in turn has had the desired result of stimulating important moves within the stock markets.

4 – The ‘weak yen’ strengthens profitability and asset worth

The ‘weak yen’ developed by the Bank of Japan has two particular benefits for Japanese businesses. First off, businesses with assets (such as factories) in other states have seen a significant development in their capital worth given the uplift of fixed assets as they are converted from more solid global currencies into a weaker yen. The second advantage of the ‘weak yen’ is the rise in value of overseas profits of these international enterprises. As a result the ‘weak yen’ has not only increased the worth of company assets, it has made them much more profitable when overseas profits are converted back into yen.

Even though these reforms have taken place in the last several years and have generated solid equity markets profits, Mr. Levesque considers that the future of Japanese equities is very bright. In a world where economic growth is seemingly difficult to come by these days, Japan provides investors with transparent reforms supported by the central bank, which are likely to translate into a strong performance of its equity markets.

About Ephraim Global
Founded in 2005, Tokyo-based Ephraim Global is an international asset management group serving clients around the world. The company offers a wide range of financial advisory and planning services, bond and mutual funds, diversified asset portfolios, pension plans and account management for private and institutional clients alike, focusing on diversification, extensive research and a risk-aware investment approach.

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