In a move which surprised the markets, the Bank of Japan stated its intention to continue its own brand of ‘quantitive easing’.
The surprise element was that it was earlier than expected, and this was due possibly to the Fed in the US being aggressive with its own QE program, and to cushion any possible fallout from the territorial issues currently going on in the region.
However many commentators are underestimating the significance of the event, according to Japanese strategist, Yoshito Sakikabara. He thinks the action from the BoJ is substantial, pledging as it does to «continue to ease policy until it expects the 1% CPI inflation goal to be achieved.»
This stimulus adds to the already gross size of the balance sheet which was recently the worst of the major economic powers until the ECB overtook its girth earlier this year.
However, does this help us figure out the near and long term future for Japanese equities? Well, its clear that the global financial situation is more influential, as well, increasingly, is the region financial situation — China for example, and a rebound for China would likely signal a similar uptick for Japanese stocks.
While Sakikibara is positive on the economic outlook, he is more concerned by the weight of corporate earnings. He notes that, whilst Q3 is negative, the outlook for the first half of 2013 is for earnings growth of between 7% and 10% per quarter, so expectations are high.
Too high? In his view, yes. Figures show that expectations are for 80% of companies to grow their margins next year, whilst in the aftermath of 2010 (hence a low base), only 70% of companies raised margins.
However even a lowering of the expectations would still leave equities looking attractive and thus, assuming a deep recession can be avoided, medium term outlook is rosy.