Japanese stocks were up 57% for 2013 on the Nikkei 225 average, and they could very likely continue to appreciate in 2014. Most of the past two decades have seen Japan’s economy stagnant; however, leadership under Prime Minister Shinzo Abe has brought actions to implement aggressive economic reforms to stimulate growth. His so called “Three Arrows” strategy is being given credit for the stock market’s historic rise. The strategy, named “Abenomics,” includes a massive fiscal stimulus, more aggressive monetary easing from the Bank of Japan, and structural reforms in deregulation and market initiatives to boost Japan’s competitiveness.
Japan’s winning bid to host the 2020 Olympic Games is also seen as a boon, particularly for the construction and hospitality industries, and analysts believe the long-term benefits will be seen in infrastructure spending in new or enhanced stadiums, facilities, housing, and transportation systems.
The Japanese stock market enjoyed a winning streak in 2013 although the Nikkei did lose ground in the summer and subsequently soar in Q3 and Q4. Growth is expected, though, not at the accelerated pace seen in 2013. Market strategists predict that Japan will outperform the global equity markets in 2014. U.S tapering is seen as good for Japan, because the dollar will get stronger and the yen weaker.
Analysts also believe the new leadership Prime Minister Abe provides will bring stability to maintain long-term gains, although they may not be as dramatic as those in recent weeks. The expected stable growth, however, is seen as a resolution for the past 15 years of deflation. While more optimistic views see sustained market strength pushing the Nikkei above 18,000 and the Topix higher by year end 2014, value oriented portfolio managers are holding to their bottom up strategy of hunting for individual bargain stocks trading below their intrinsic value.
The government initiatives have instilled confidence, especially from foreign investors. In addition, Japanese companies are continuing to expand into the global market, contain expenses, and provide innovative products and services.