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Categorized | Currencies

Credit Suisse turns overweight on Japanese stocks

Posted on November 23, 2016

Buy, buy, buy.

The prospect of higher US bond yields, ramped-up stimulus from the Bank of Japan and a weaker yen, have led Credit Suisse to turn bullish on Japanese equities.

“Japan ranks top of our valuation scorecard”, says Andrew Garthwaite, at the Swiss bank as it upgraded its stance on Japanese stocks to “overweight”.

Mr Garthwaite notes the Japanese economy is set to expand a steady clip of 2 per cent this year while welcome changes to corporate governance – including the hiring of more outside directors – should also help.

With Donald Trump’s election in the US also driving Treasury yields and the dollar higher, a softer yen should add to the positive cocktail of factors supporting Japanese stocks.

“The more US bond yields rise, the more the yen weakens and 10 per cent off the yen adds around 15 per cent to earnings-per-share”, Mr Garthwaite adds.

Higher US bond yields have also helped push up yields on Japanese debt. With the BoJ moving towards a new “yield curve control” policy – where it caps the 10-year yield around 0 per cent – a global rise in yields is set to push Japan’s policymakers into more action, another boost for stocks.

“The new policy of yield curve targeting, when combined with the impact of ‘Trumpflation’, has the potential to generate further yen weakness”, notes Credit Suisse.

Japan’s currency has strengthened more than 7 per cent against the dollar this year, despite the BoJ’s best attempts to push it down with its bond-buying measures worth ¥80tn a year. Meanwhile, the benchmark Nikkei index is down 4.5 per cent so far this year.