BUY THE DIP IN JAPAN

Takeaway: We reiterate our intermediate-to-long term bullish bias on Japanese equities and view any near-term weakness as a buying opportunity.

Watch the brief 2min summary of our latest thoughts on Japan in light of the disappointing BoJ statement today.

 

Thesis summary:

 

  • Today in Japan, the lack of QQE expansion in spite of the BoJ lowering its forecasts for both growth (FY15: down -10bps to +2%) and inflation (FY15: down -20bps to +0.8%) resulted in the Nikkei 225 selling off -2.7%.
  • In conjunction w/ Kuroda’s still-sanguine guidance and our positive outlook for Japanese GDP growth over the next two quarters, marginal easing has now been officially punted well into 2H15.
  • Consensus expects a move in October and we currently have no reason to argue for one month sooner or later than that; we just know two catalysts need to materialize before the BoJ can justify expanding the pace of its asset purchases:
    • The YoY RoC in the USD/JPY cross needs to  converge towards zero.
    • Survey based inflation measures (namely Tankan) need to trend lower  – which they are likely to do if our forecast of continued and material disinflation in Japan proves prescient.
  • All told, we remain bullish on Japanese equities and continue to expect foreign inflows to support the market in light of the “win-win-win” thesis we outlined in a presentation last week (CLICK HERE to access the video replay).

 

BUY THE DIP IN JAPAN - DM Idea Flow Monitor

 

Feel free to ping us with any follow-up questions.

 

DD

 

Darius Dale

Associate