The Japanese Stock Market Is The Hottest Market In The World—Here's The Story That's Got Everyone So Excited

Japan mt. fuji

Photo: Wikimedia Commons

The Japanese market rallied 2.86% last night.We’re getting used to huge moves each day, as the stock market has been on fire since early November.

The reason? After years and years of weak growth and deflation, new prime minister Shinzo Abe has promised ultra-aggressive easing on both the fiscal and monetary side of things.

But the task is not without huge challenges.

Bienville Capital Management has put together a fantastic guide to the state of Japanese stocks, the policy options available to the Bank of Japan and the ministry of finance, an explanation of why the yen could go much lower, and the huge structural challenges being faced by the economy.

It’s probably the best guide we’ve seen yet on the topic, by far.

Huge thanks to Bienville Capital for their permission to run their fantastic presentation.

Japan has been on the decline for a long time...

But the new government has promised an aggressive strategy of reflation

Thankfully, the Bank of Japan has massive latitude to stimulate the economy. It has many tools available to it.

You can see the problem. Wages have gone nowhere.. They've been mired in deflation.

It is true that the Bank of Japan has tried to stimulate via balance sheet expansion...

But actually, compared to other countries, the Bank of Japan has ben a lightweight.

The Nikkei has been a dog.

Since the crisis, Japan has badly lagged the S&P 500.

The yen has been extremely strong against the dollar, although that has started to turn.

The yen could fall another 20% before hitting where it was in 2007.

In the US, equities have benefitted significantly form negative real interest rates.

On the other hand, Japan has always had positive real interest rates, posing a problem for stocks.

The last time the Bank of Japan was serious about easing, it was able to weaken the yen.

And the Nikkei had a big surge.

In Summary, Japan has a lot of options, and on a valuation basis, investments are compelling.

But the challenges are pretty significant.

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