Weekly: An imminent recovery
Fresh out from the global pandemic crisis, Japan is entering a recovery phase with many promises in store for an extended recovery. 4Q20’s gross domestic product was better than expected, bringing the economy back to pre-pandemic levels on a quarterly basis, thus setting the stage for a full-fledged recovery this year despite the re-introduction of a state of emergency in January.
Accommodative monetary policies such as bond and equity purchases, negative zero interest rates, and yield targeting remain to aid the recovery. Vaccinations are starting this week (ending 26 February) and targeted towards the whole of Japan’s population, with plans to produce AstraZeneca vaccines in Japan. Japan’s exports were rising due to China’s swift recovery and accelerated digitalisation post-COVID, and is seen as sustainable due to Japan benefiting from Regional Comprehensive Economic Partnership, and its high tech production capabilities, such as those in the semiconductors and automation space. A major re-rating catalyst for the market would be the Olympics, which if held smoothly, could lead to a huge comeback for the tourism sector.
New prime minister Yoshihide Suga has pledged to restructure and reinvigorate the Japanese economy. More meaningful measures that may present opportunities for investors are the opening of the financial sector, an upgrade of the nation’s digital capabilities, a new industrial revolution for Japan Inc, consolidation of the banking sector, the promotion of competition in the telecom sector, and the facilitation of consolidation among small and medium-sized enterprises.
IT systems integrators should be a key beneficiary of Suga’s push to accelerate the digitalisation of government agencies; he has set up a digital agency to oversee this. This comes on the back of Japan scoring poorly in assessments of its government’s digital capabilities, with many tasks still being handled manually and via paper forms. IT systems integrators could benefit if they win government projects.
Japan’s Nikkei 225 Index broke 30,000 for the first time since 1989. We believe there is a high probability that the index can climb towards its all-time high of 38,915 in the next two years.
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