As I warned everyone already in March 2012 in this article, it is finally happening. Japanese equities are indeed outperforming Japanese bonds and we can see this event starting in one of the most important equities brokers, Nomura Holdings (Chart 1). In my previous article I said that Nomura Holdings would flourish as it is the primary brokerage service in Japan.
Nomura, which pays a dividend that's higher than the 10 year Japanese bond yield, has skyrocketed just recently and is going to keep going upwards, I believe.
One of the main reasons is that people are expecting a further easing from the Japanese central bank. The weekend elections in Japan have just passed and the liberal democratic party has returned, which is bullish for Japanese equities.
On the Japanese bond market we can already see the effects of these election results happening. Investors are fleeing the Japanese bond market to get into equities (Chart 2).
The reason for this sell-off in Japanese bonds is a declining value in the yen (Chart 3), which is the result of the anticipated easing policies of the Japanese government.
On a final note, if we look at the 10 year bond yield vs. the dividend yield we have the following picture (Chart 4). If an investor puts his money in Japanese equities, he will have a higher return than when he puts his money in bonds. The main stream media is finally coming to this conclusion.
Today, you only get 0.76% yield on a 10 year Japanese government bond, while you would get on average a 2.2% dividend on Japanese equities.
|Chart 4: Japanese dividend yield Vs. 10 year Japanese bond yield|
I therefore suggest that investors buy some Japanese equities like Nomura Holdings (NMR) or buy the iShares MSCI Japan Index ETF (EWJ). If you want to benefit from the disparity in bond yield Vs. dividend yield I recommend to invest in NTT Docomo (DCM), which notes at a dividend yield of 5% (which is steadily increasing over time).