The Zhitong Finance App learned that Bank of China Prudential Asset Management published an article saying last month that although the Bank of Japan kept interest rates unchanged at the January policy meeting, its rhetoric turned hawkish, which means that monetary policy may be normalized within this year, and the progress of the latest round of spring salary negotiations will be a key factor. Still being heard, the results of Japan's preliminary spring salary negotiations (Spring Dou) have been announced one after another. Nominal wage increases in various manufacturing industries have all exceeded 5%, which has not been seen in 30 years.

According to reports, most of the well-known companies, such as famous automobile manufacturers and general beverage producers, have responded to requests for wage increases put forward by trade unions, and wage increases in large steel companies have reached double digits. Meanwhile, the national core consumer price index for January, previously announced by the Japanese government, rose 2% year on year, and remained at or above 2% for the 22nd consecutive month. This seems to reflect that the “virtuous cycle between inflation and wage growth,” which Bank of Japan Governor Kazuo Ueda previously said he hoped to see, has begun to take shape. Market expectations that the Bank of Japan might announce the end of the negative interest rate policy at the March meeting gradually heated up, and the yen also rose for a while.

The fund manager said that the depreciation of the yen is usually beneficial to the performance of the Japanese stock market: judging from historical data, the Japanese yen spot exchange rate increases, which means that when the yen depreciates, the Nikkei Average generally improves. The two generally show an inverse relationship. This is mainly because depreciation boosts local export performance. According to a short-term economic survey of Japanese companies, most entrepreneurs are happy to see that the yen continues to weaken, and local manufacturers are even more hopeful about future sales due to the weak yen; based on the fact that some local industry leaders have recorded record net operating profits, this optimism is not unfounded.

In fact, there are advantages and disadvantages to a weak yen: companies with a large scale of multinational business and a large share of overseas revenue can naturally benefit from exchange to a certain extent; on the other hand, weakening yen will inevitably increase the cost of companies obtaining raw materials from abroad, so whether these rising costs can be passed on is quite critical. Fund managers have observed that there are signs of an increase in the number of Japanese companies that have recently been able to pass on related cost increases downstream, which may explain why the latest financial reports show that most local companies' profits are better than expected and have increased.

At the March meeting, the Bank of Japan announced the end of the negative interest rate policy implemented in 2016, as expected by the market. The yen did not strengthen after the announcement of the decision. Fund managers believe that ending negative interest rates is different from policy austerity. In addition, Governor Kazuo Ueda reiterated that Japan's financial situation will remain relaxed even after the local monetary policy is normalized, suggesting that there is little chance of continuing to raise interest rates; at the same time, the Western Central Bank, led by the Federal Reserve, will not necessarily cut interest rates drastically in the short term. In other words, the wide interest rate spread between Japan and overseas is likely to continue for some time, and the structural weakness shown by the yen is more difficult to reverse in the short term. However, speculative trading and news of changes in monetary policy may cause the yen to fluctuate, and the latest bitmap released by the Federal Reserve shows that the US may cut interest rates three times each this year and next, and that the yen may appreciate against the US dollar as interest spreads narrow. The contribution of foreign exchange to Japanese companies' profits may decrease, thus affecting the performance of the Japanese stock market.

Despite this, the Japanese stock market still has good fundamentals: On the economic side, Japan's revised final GDP for the fourth quarter of 2023 rose 0.1% month-on-month, successfully avoiding the technical recession. Among them, corporate equipment investment recorded a significant improvement. In addition, the services purchasing managers' index rose further in March. As Kazuo Ueda said he did not think ending negative interest rates would cause mortgage interest rates and corporate borrowing costs to rise sharply, the fund manager said that the strong performance of the Japanese service industry may provide a good incentive for local entrepreneurs to increase their investment in a low interest rate environment in order to seize more business opportunities from global travelers.

In terms of capital flows, fund managers have observed that overseas capital continues to flow into the Japanese stock market, while the allocation of global fund managers to the Japanese market still seems to be low; in addition, Japan's real interest rate, which is still negative, and the reforms carried out by Japan's domestic tax-free savings plan NISA (Japan Personal Savings Account) may help boost household depositors' willingness to invest, and the Tokyo Stock Exchange promotes reforms to improve corporate governance. There are still structural catalysts for many listed companies to make repurchases to increase return on capital.

In terms of valuation, even with the recent strong performance of the Japanese stock market, fund managers do not rule out the possibility of consolidation in the short term, but in reality, the local stock market's valuation is not excessively expensive, especially when compared to the US stock market: the TOPIX (TOPIX) index, which covers more than 2,000 Japanese listed companies, currently the price-earnings ratio is only slightly higher than the 10-year average; while the price-earnings ratio of the TSE Midsize 400 Index and the TSE Small-Cap Index is even lower than their own average of nearly 10 years. As investors in Japan and abroad pay more attention to the local stock market, fund managers expect that part of the capital may try to find investment opportunities in small and medium-sized companies, so that the upward trend in the stock market, which is dominated by large stocks, can gradually spread to small and medium-sized stocks, which have been relatively backward until now.

In summary, the Bank of Japan's monetary policy adjustments have the opportunity to increase the volatility of the yen, which in turn will indirectly affect the local stock market, and after performing well in recent months, the possibility of some adjustments cannot be ruled out. Therefore, from the perspective of asset allocation, fund managers have a neutral view of the Japanese stock market; however, it is reiterated that when investors construct portfolios, the Japanese stock market should take a seat based on geographical dispersion considerations. Everyone may wish to explore the Japanese market according to their own investment goals and find suitable relevant tools.