Investors are more confident in a Japanese leader than any time since at least September 2010, with optimism about Prime Minister Shinzo Abe’s policies exceeding that for counterparts in the U.S., Europe and China.
The number of respondents who are more optimistic than pessimistic on the impact of Abe’s plans on Japan’s investment climate rose to 66 percent this month from 54 percent in January, a worldwide poll of investors, analysts and traders who are Bloomberg subscribers showed. Japan offers one of the top two opportunities globally in the next year, according to 33 percent of respondents, up from 21 percent and beating China for the first time in surveys dating back to 2009.
Most in the survey see an end to the deflation entrenched in Japan for more than a decade, as Abe and central bank chief Haruhiko Kuroda apply monetary and fiscal stimulus. At the same time, a minority of 34 percent saw Abenomics delivering both inflation and faster domestic growth, heightening focus on the government’s structural-reform agenda to be unveiled next month.
“Abe bought time and succeeded in changing people’s minds” about Japan’s potential, said respondent Ai Sato, a stock trader at Nissay Asset Management in Tokyo. “We’re seeing the effects of this ‘sake’ through foreign investors increasing Japanese exposure,” she said, using a reference to traditional rice wine for the liquidity being injected by the Bank of Japan.
A government report yesterday showed gross domestic product rose 3.5 percent at an annualized pace, the most in a year, propelled by consumer spending and export gains. It underscored the need for steps to revive domestic business opportunities, with the fifth straight quarterly drop in private, non-residential investment dragging on growth in the first quarter.
The quarterly survey of 906 Bloomberg customers was conducted May 14, three days after Group of Seven finance chiefs indicated they will tolerate a sliding yen for now as they intensified their focus on Japan’s recovery strategy.
Abe, 58, took office for the second time as prime minister in December after winning an election on a platform of reflation, kicking off a slump in the yen in anticipation of monetary expansion. He also has pledged to spur growth by scrapping regulations to encourage investment and hiring.
Abe is set to unveil details of his growth plan in a speech today and the Nikkei newspaper said he will announce support for research into self-driving automobiles and other technologies, strategies to boost agricultural output, and a target of tripling infrastructure exports to about 30 trillion yen ($293 billion) by fiscal 2020.
The yen touched 102.76 per dollar this week, the weakest since October 2008, helping make exporters from Toyota Motor Corp. to Sony Corp. more competitive.
Forty-seven percent of poll respondents said they’re reducing exposure to the yen, while 49 percent are doing the same for Japanese government bonds. Sixty-three percent predicted the Nikkei 225 Stock Average (NKY) will be higher six months from now, the highest share in polls dating to July 2009.
The Nikkei closed above 15,000 on May 15 for the first time since December 2007, after surging 68 percent in the past six months.
“Investor optimism in Prime Minister Abe is centered around what is clearly a substantial policy change at the Bank of Japan,” said respondent Peter Redward, a principal at Auckland-based researcher Redward Associates Ltd. and a former Reserve Bank of New Zealand economist. “Aggressively reflationary policies are driving optimism in the Nikkei and the weaker yen.”
The BOJ policy board led by Kuroda decided last month to double debt-buying to more than 7 trillion yen a month to achieve 2 percent inflation in two years.
About seven in 10 respondents in Asia viewed Kuroda, 68, favorably, compared with an approval rating of about 60 percent for investors outside the region.
Third Point LLC’s Daniel Loeb sent Sony Corp. CEO Kazuo Hirai a letter this week proposing a breakup. In the letter, he cites Abe’s policies as one reason for his positive stance.
“Sony stands at the crossroads of compelling corporate opportunity and massive Japanese economic reform,” Loeb said. “Under Prime Minister Abe’s leadership, Japan can regain its position as one of the world’s preeminent economic powerhouses and manufacturing engines. The most critical of Prime Minister Abe’s “Three Arrows” approach will be unveiled next month: initiatives to create more economic growth in Japan through deregulation and structural reform. Leading businesses like Sony with leaders like you, Mr. Hirai, can spearhead this important growth.”
The BOJ’s new stimulus policy will result in both higher inflation and increased domestic growth, according to 34 percent of participants, while 17 percent said it will only result in a quickening of prices. Thirty-five percent said while the policy won’t have an impact on inflation or economic expansion, it will drive up stock prices through a cheaper yen.
Respondents in Asia were almost twice as bullish on the Japan market as those outside the continent, even as about half said BOJ easing will fail to revive inflation or boost growth. Fifty-five percent of customers in Asia say Japan is among the top markets for investors in the nest year; for customers outside of Asia, it’s 28 percent.
Optimism about Japan contrasted with a deepening concern about China’s outlook, with the share of respondents who see the world’s second-largest economy deteriorating doubling from January.
Respondents who see China’s markets as offering one of the top two opportunities worldwide over the next year fell to 13 percent from 31 percent in January, while those who are optimistic of Chinese President Xi Jinping’s policies dropped to 48 percent from 55 percent.
China’s growth rate will be 7 percent or less over the next five years, according to 59 percent of respondents. Only 5 percent predict it will remain at least 8 percent while 31 percent forecast a rate of between 7 percent and 8 percent.
Chinese Premier Li Keqiang this week signaled policy makers are reluctant to use stimulus to counter a slowdown in the world’s second-largest economy because the risks outweigh the benefits. Economic growth of 7.7 percent in the first quarter from a year earlier trailed a fourth-quarter expansion of 7.9 percent.
“China is now in a huge dilemma,” said survey participant Frank Lau, head of trading at CMS Asset Management (HK) Co. in Hong Kong. “Pressure on exports is hurting the economy, but the fear of inflation, in particular of increasing property prices, has already built anger in society and is preventing the government from easing monetary policy.”
Lau said he is cautious on the outlook for China consumer-related companies and exporters, as well as commodity prices, while he sees “a very good opportunity” in Japan’s real estate market as inflation in Asia’s second-largest economy changes investment behavior.
The poll of Bloomberg customers was conducted by Selzer & Co., a Des Moines, Iowa-based company. The survey has a margin of error of plus or minus 3.3 percentage points.
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