Standard Life believes the announcement of radical banking sector restructuring policies in Japan ma...
Standard Life believes the announcement of radical banking sector restructuring policies in Japan may be laying the groundwork for a sustainable improvement in the Japanese equity market.
Now is not the time to be bullish on Japanese equities however, the group said, and even if the policies bear fruit, it could be years before the markets, made pessimistic by years of failed government policy, actually respond.
Andrew Milligan, head of global strategy at Standard Life Investments, said: 'Since the Japanese equity market bubble burst in the early 1990s, deflation has been protracted, causing a dramatic turn in fortune for the economy.
'Now however, the Bank of Japan and government are showing signs of being more radical and the long journey back may be about to start. In the last few weeks, several developments have rekindled hope that the pace of change is about to accelerate. In a radical break with tradition, the Bank of Japan recently announced that it would offer to buy some of the banks' shareholdings. The aim is to stabilise the capital base of the banks and remove the need for forced selling into a weak market.'
The Japanese prime minister Junichiro Koizumi, Milligan added, also appointed as head of the Financial Services Authority, Heizo Takenaka a month ago.
Prospects for the corporate sector and the equity market could be dramatically improved, Standard Life believes, if the authorities provide the right framework.
However it is still too early to buy Japanese equities on the expectation that a structural recovery will take hold in the next few years, the group added.
'Given the number of false dawns there have been in the last 10 years, it would be brave at this stage to give the reformers the benefit of the doubt,' said Milligan. 'We are monitoring developments very carefully indeed over the next few months to see whether the recent momentum of structural reform is sustained, and our neutral position on Japanese equities should be raised.'
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