Patrick Moonen, Senior Equity Strategist at ING Investment Management reports that the Japanese equity market is one of the firm’s most preferred markets. "Japan now has the best chance in more than a decade to leave the deflationary environment it has been in" he explains. "It is sustainable to continue with the loose monetary policy without limits until inflation reaches 2% - the Bank of Japan can continue buying Japanese government bonds."
It’s not just the loose monetary policy but also relative earnings momentum in Japan that appeals to ING. Earnings momentum is at its highest level in almost three years whereas in the US, Europe and the emerging markets, earnings momentum continues to be negative. "This is a powerful factor behind the performance of Japanese equities" Moonen says.
The depreciation of the yen to an average of 95 against the dollar has encouraged earnings growth of over 40% to March 2014 and forward valuations that make Japan as cheap as Europe. "But here the Japanese central bank is more flexible than the ECB" Moonen comments.
The third element and consequence of Abenomics is that Japan is really getting the benefit of the doubt that economic growth figures will pick up later this year and into 2014, Moonen says. "These factors differentiate between the regions and Japan scores relatively highly on each of these factors."