Ever since Prime Minister Abe’s plans for economic and financial reform – ‘Abenomics’- were put in place, there has been increased optimism towards financial assets.

Monetary and fiscal stimulus have supported rallies in the Nikkei and USD-JPY since November 2012 of 125% and 50%, respectively. 

The sense of optimism is different this time. This is more than financial assets being supported by quantitative easing.

Standard Chartered (SC) research notes that there is a strong belief among local investors that things are changing in corporate Japan. 

  • Corporates are drawing down cash from their balance sheets and using it to fund overseas M&A. There is also an increased focus by corporate leaders on improving return on equity (ROE). 
  • If the objective of Abenomics is to change the mindset of consumers and corporates, it seems that the corporates are listening and ready to act. 
  • If local investor optimism was focused on USD-JPY in December, investors are currently focusing all of their domestic interests on local equities. 
  • The shift in investor positioning is reflected in the change in correlation between USD-JPY and the Nikkei. 
  • As recently as February, the 30-day rolling correlation between the two markets was as high as 0.60, but has fallen to marginally negative levels.
  • In addition to increased optimism about corporate behaviour, there is increased confidence in corporate profitability. 

SC adds that investors highlighted improvements in earnings as well as profit margins.

The material has been provided by InstaForex Company – www.instaforex.com