The Zhitong Finance App learned that Guojin Securities released a research report saying that the withdrawal of the ultra-loose policy seems to be a certain disadvantage for Japanese stocks from the denominator side and the numerator side: 1) The withdrawal of “negative interest rates” or an increase in interest rates on Japanese bonds will benefit Japanese stocks from the denominator side. 2) 42% of Japanese stock revenue was overseas revenue. The “ultra-loose policy” adjusted or drove the appreciation of the yen, which in turn impacted Japanese stock profits. 3) Early net exports were an important support for the Japanese economy, and the withdrawal of the “ultra-loose policy” may also affect the success of Japan's economic recovery. However, the bank believes that the impact on Japanese stock profits etc. will not be significant. Fundamentally, Japanese companies may continue to achieve profit growth in the next 2 years, and the current allocation of overseas capital to Japanese stocks is not high in terms of capital. At the same time, the early rise in Japanese stocks was supported by profit. Currently, valuations in some industries are relatively reasonable, and there is still some room for growth.

Incident: Since March 7, the Japanese stock market has adjusted as the market's expectations of Japan's withdrawal from the “ultra-loose policy” heats up.

Guojin Securities's views are as follows:

The recent focus of the Japanese capital market? The “ultra-loose policy” may be withdrawn, which once raised concerns in the market

Since March 7, Japanese stocks have continued to adjust after reaching record highs due to concerns about the withdrawal of the “ultra-loose monetary policy.” As the economy stabilizes and inflation improves, Bank of Japan officials make frequent statements saying “policies including negative interest rate policies and yield curve control may be adjusted”; as of March 15, overnight interest rate swaps show that the probability that the Bank of Japan will raise interest rates on March 19 has risen to 56%. Affected by this, Japanese stocks have been adjusted since March 7, and Nikkei 225 fell 3.5%.

Market concerns did not “come out of nowhere,” and the withdrawal of ultra-loose policies seemed to be bad for Japanese stocks on both the denominator side and the numerator side. First, “negative interest rates” exit or lead to an increase in interest rates on Japanese bonds, weakening Japanese stocks on the denominator side. Second, 42% of Japanese stock revenue was overseas revenue. The “ultra-loose policy” adjusted or drove the yen to appreciate, which in turn impacted Japanese stock profits. Third, early net exports were an important support for the Japanese economy, and the withdrawal of the “ultra-loose policy” may also affect the success of Japan's economic recovery.

What is the impact of the withdrawal of ultra-loose policies on the market? Japanese bonds and yen fluctuate or are limited, and there is little impact on Japanese stock profits, etc.

After several adjustments in the previous period, YCC's final withdrawal may have a relatively limited impact on Japanese bond yields. First, since August 2023, the Bank of Japan has not carried out “indefinite fixed interest rate debt purchases,” and YCC has “lived in its name.” Second, the current swap interest rate for 10Y Japanese bonds is 0.89%, and the spread with 10y Japanese bonds has narrowed to 10bp, indicating that the market's expectations for rising interest rates on Japanese bonds are not strong. Third, the Japanese bond maturity structure, which was distorted earlier, has recently been repaired to a certain extent, and interest rates on long-term Japanese bonds have not risen sharply.

Delays in export transmission, etc., may weaken the impact of yen appreciation on Japanese stock profits; and with the “deflation trap,” the Japanese economy already has some endogenous momentum. First, there is no need to worry too much about the impact of the reversal of arbitrage transactions on the yen as hedging costs rise and the level of congestion in US-Japan arbitrage transactions decreases. Second, changes in the yen exchange rate lead exports, and depreciation may still be driving profits for Japanese companies to a certain extent. Third, the “relay” of consumer and fiscal stimulus is expected to help Japan's economy recover.

Looking backwards, a possible interpretation of Japanese stocks? Fundamentals and funding may be supported, and there is still room for valuation repair in some industries

Fundamentally, Japanese companies may continue to achieve profit growth in the next 2 years; in terms of capital, the current allocation of overseas capital to Japanese stocks is also not high. 1) The normalization of the Japanese economy may drive a broader recovery in Japanese stock profits; in 2024-2025, Nikkei 225 expected profit growth of 67% and 86% of listed companies, respectively. 2) Since 2022, net sales of foreign stocks to Japanese stocks have been 2.7 trillion yen, and the current allocation ratio is low; as the effects of the East China Stock Exchange reform gradually became apparent, the relative attractiveness of Japanese companies may increase further.

On the emotional side, the early rise in Japanese stocks was supported by profit. Currently, valuations in some industries are relatively reasonable, and there is still some room for improvement. Since 2012, the profit contribution to Nikkei 225's rise has been as high as 90%; recently, Japanese stocks are also still being helped by the revised EPS forecast for the next 12 months. The dynamic price-earnings ratio is only 22.5 times, far lower than the “bubble period” of 1990. From an industry perspective, the current valuation quantiles for optional consumption, medical care, etc. are only 39.3% and 38.4%, and there is still some room for improvement.

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