Japan’s Nikkei 225 Stock Average could fall about 20 percent to 12,000 if the government doesn’t do more to persuade investors its economic stimulus efforts will succeed, Nomura Holdings Inc. (8604)’s head of Japan equities said.
“Worldwide investors are breathlessly watching the future of Japan,” Norikazu Akedo, who oversees equity sales and trading at the nation’s largest brokerage, said in a Nov. 12 interview. “We want the government to send out strong messages to foreign and local investors.”
The Nikkei 225 rose 2.1 percent to 14,876.41 at the close of trading in Tokyo today. The measure is down 4.8 percent from a 5 1/2-year high on May 22 amid concern that a planned sales-tax increase by the government will slow momentum in an economy bolstered by unprecedented monetary and fiscal stimulus. For now, Akedo said Nomura is sticking to its forecast for the measure to rise to 18,000 by the end of 2013.
Japanese equities are still the best performers among developed markets this year, with the Nikkei 225 and broader Topix index rising 40 percent through yesterday, data compiled by Bloomberg show. Overseas institutional investors have poured $108.5 billion into Japanese stocks this year, the most among 10 Asian markets tracked by Bloomberg.
Japan’s stock-market rally helped Nomura’s trading profit in the three months to September rise 24 percent from a year earlier, an Oct. 29 exchange filing showed. While the firm’s net income for the period climbed almost 14 times, profit missed estimates as equities dropped from their May peak.
The Topix index rose less than 0.1 percent in October, the smallest gain among 24 developed markets tracked by Bloomberg, amid speculation whether Prime Minister Shinzo Abe can succeed with growth-oriented initiatives in the so-called third arrow of his strategy following fiscal stimulus and monetary easing.
Abe said Oct. 1 he will proceed with a plan to raise the sales levy in April to 8 percent from 5 percent.
The premier pledged to create a “virtuous circle” of higher employment and spending in an October speech marking the opening of the current session of parliament that runs through Dec. 6. Abe has dubbed the session as the one for “getting things done,” reflecting a focus on pushing through legislation for his growth strategy.
On the table are steps to encourage corporate restructuring to boost industrial competitiveness and the introduction of zones for deregulation in fields from medical treatment to urban development. The cabinet on Nov. 5 approved the special zone bill.
“Japan is at a turning point of whether it can change or not,” Akedo, 47, said.
Japanese companies eased off on capital spending in the July-September period and failed to step up exports even amid weakness in the yen, government data showed today. Economic growth slowed to an annualized 1.9 percent from 3.8 percent the previous quarter, the data showed, with the gain relying on government spending and an accumulation of inventories.
Corporate investment in the world’s third-largest economy increased 0.7 percent in the quarter, down from the previous period’s 4.4 percent, according to the Cabinet Office report. A widening trade gap pared growth by 1.8 percentage point.
Government and central bank policies will fail to reignite long-term growth as they don’t address structural flaws in areas such as labor and immigration, Andreas Utermann, Allianz Global Investors’ chief investment officer, said in an interview from Paris yesterday.
Twenty-five of 34 economists including those at Goldman Sachs Group Inc. and UBS AG expect the BOJ to add to easing in the first half of next year, according to a Bloomberg survey carried out Oct. 23-28.
The Nikkei 225 will probably rise to 18,261 next year, which was the gauge’s peak in 2007 during Abe’s first stint as prime minister, Takashi Hibino, chief executive officer of Daiwa Securities Group Inc., said today.
Company earnings currently are close to levels seen in 2007 and “the market is supposed to be reacting similarly,” he said at a conference in Tokyo. Daiwa is Japan’s second-largest brokerage.
Economy Minister Akira Amari and five other government officials are scheduled to speak at a Nomura investment forum next month, Akedo said. A record 500 foreign and 1,500 Japanese investors plan to participate, he said.
Top executives at 37 Japanese companies including Panasonic Corp. (6752), Yahoo Japan Corp., Gree Inc., Nippon Telegraph & Telephone Corp., Kirin Holdings Co. and Komatsu Ltd. are scheduled to hold presentations at the forum next month.
Investors attending the forum are keen to know how the increased consumption tax will hurt Japanese companies, Akedo said. They want to know whether corporates plan to raise base salaries for employees, continue mergers and acquisitions and buy back shares or raise dividends, he said.
“The checkpoints on the list include whether Japan can really change and what the Bank of Japan will do as the second step for monetary easing,” Akedo said.
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