Japan: Equities to be lifted by weak yen and Olympics in the near-term – DBS Bank

According to economists at DBS Bank, for a country where inflation is persistently below target despite maintaining zero interest rates for the longest time, inflation should be most welcomed in Japan. What’s more, accelerated vaccination rates globally, and more importantly in Japan lately, have finally made the Olympic dream come true. 

The BoJ to maintain accommodative policies and weak yen

“The latest inflation print from Japan continues to point to deflationary pressure; we maintain the view that the BoJ will maintain its accommodative monetary policies of quantitative easing, negative policy rate, and 0% yield targeting.” 

“A rise in global inflation should still be positive for Japan. The transmission mechanism is through higher external rates and widening spreads, hence weakening the yen and favouring Japan’s exports competitiveness. Japan equities have historically performed well in a weak yen environment.”

“ We believe the games, if held successfully, will bring back consumer confidence not only for Japan but globally, as a postCovid era would be born.” 

“While the world works towards normalisation post-covid, a rise in global rates and inflation should be taken in strides as global recoveries build up. Investment opportunities brought about by demographic transitions, climate change, and technology shifts should return in focus as they are long-term and secular in nature, and will be less affected by negative cyclical factors.”