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‘Abenomics’ turns Japan into global investor target

by Shamim Adam

Bloomberg

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, 33 percent of the respondents said, 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 Bank Of Japan 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 the 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. “We’re seeing the effects of this ‘sake’ through foreign investors increasing Japanese exposure,” she said, using a reference to rice wine for the liquidity being injected by the Bank of Japan.

The optimism rating for Abe’s policies is higher than any leader ever tested, even Germany’s Angela Merkel, who has long been at the top on this question.

A government report Thursday 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, nonresidential investment dragging on growth in the first quarter.

The quarterly survey of 906 Bloomberg customers was conducted Tuesday, 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 his Liberal Democratic Party won 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.

The yen touched 102.76 per dollar this week, the weakest since October 2008, helping make exporters like Toyota to Sony more competitive.

Forty-seven percent of the pollees 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 will be higher six months from now, the highest share in polls dating to July 2009.

The Nikkei closed above 15,000 Wednesday for the first time since December 2007 after rising 67 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 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.

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 next year; for those 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 its economy deteriorating doubling from January.