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Will Japanese stocks climb higher?

Benjamin Cher
Benjamin Cher11/27/2017 08:00 AM GMT+08  • 8 min read
Will Japanese stocks climb higher?
(Nov 27): Japanese stocks have enjoyed a stellar run since the beginning of the year, with the benchmark Nikkei 225 rising 17.8%. Even taking into account the 0.7% depreciation of the yen versus the US dollar (4.2% versus the Singapore dollar), that is a
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(Nov 27): Japanese stocks have enjoyed a stellar run since the beginning of the year, with the benchmark Nikkei 225 rising 17.8%. Even taking into account the 0.7% depreciation of the yen versus the US dollar (4.2% versus the Singapore dollar), that is a strong return for a market that was once widely seen as facing the debilitating secular trends of deflation and ageing demographics.

Now, even as the Nikkei 225 breaches levels not seen since 1989 — only a couple of years before Japan’s massive asset price bubble burst — many analysts and fund managers say Japanese stocks are still reasonably priced and could climb a lot higher, supported by expansive economic policies and shareholder-friendly corporate behaviour. In addition, the synchronised economic pickup across most developed markets is spurring a new global capital expenditure cycle, which is likely to be positive for Japan’s capital goods sector.

“Japan’s competitive machinery sector is geared to an increase in regional capital expenditure demand, which has been strong in recent months. US tax reforms, if passed, should also be positive for US capex growth, which will in turn benefit Japanese companies,” says Neo Teng Hwee, chief investment officer at UOB Private Bank.

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