Morgan Stanley on the Japanese Market in 2006: "Dawn of a New Golden Age" (ETFs: EWJ, ITF; CEFs: JEQ, JOF)

Excerpt from Morgan Stanley economist Takehiro Sato's recent essay, Japan: The Dawn of a New Golden Age:

There potentially will be three surprises for the Japanese economy in 2006. (1) Achieving the government’s 2% nominal growth target, signaling an end of deflation, on robust corporate profit growth and end of the nominal-real reversal for GDP, even though the core CPI inflation rate may revert to negative ground. (2) A retreat from the pessimistic outlook on the fiscal tightening path and a lower fiscal risk premium (RP) amid improvement in the primary balance (PB) thanks to rising tax revenue. (3) Monetary support for asset markets as a state policy via the BoJ sustaining a zero rate during 2006. These surprises all support further euphoria in asset markets under near-zero or negative real interest rate conditions, in our view. Conditions also fundamentally differ from the bubble period, as valuations are in line with profit growth.

Quick note: The easiest way for investors to get exposure to Japan is via the iShares Japan ETF (EWJ), which holds large cap stocks, or the iShares Topix 150 ETF (ITF) which tracks the Standard & Poor's/Tokyo Stock Price Index (TOPIX) 150 Index. (Thanks to Roger Nusbaum for pointing out the latter.)

There are two closed-end funds that hold Japanese stocks and trade in the US: The Japan Smaller Cap Fund (JOF), which provides exposure to small cap Japanese stocks and has an annual expense ratio of 1.48%, and the Japan Equity Fund (JEQ), with an annual expense ratio of 1.07%.

Full essay here.

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Comments

[Steven Towns:]

In case you missed it earlier, here is another Morgan Stanley economist forecasting an end to Japan's deflation, or as he calls it, "sayonara to deflation."

2005 Dec 27 02:59 AM