Investors weigh up a roller-coaster year for Japan

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Japan - December 2014

With the Japanese domestic market looking likely to receive a boost from within the country, this could provide international investors with more confidence in the market.

Richard Kaye, portfolio manager at Comgest Growth Japan fund, suggests the GPIF asset allocation decision is more important than the Bank of Japan’s (BoJ) decision to increase QQE.

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He explains: “Japanese institutional investors’ two-decade refusal to value their own market properly has been a constant distorting factor and the clearest explanation for the long-term underperformance of the Japanese market. A reassessment of allocations opens up entirely new horizons.

“The BoJ measures are surprising in many ways, and while the action is important, the real point here is the symbolic value of the measures. Time and again the Abe administration has shown its heart to be with the revival of the economy, and that it will do whatever it takes to realise that.”

It is therefore not surprising that the combination of the two measures has seen the Nikkei 225 index gain 5.31 per cent for the month to November 11 2014, while the Topix index has added 4.1 per cent and the MSCI Japan index has gained 4.57 per cent.

But if inflation fails to move closer to the elusive 2 per cent target, then further action by the BoJ cannot be ruled out, even though a further rise to consumption tax has been delayed.

Nyree Stewart is features editor at Investment Adviser