Japan’s market boom to continue despite political uncertainty: Fidelity

Japan’s stock market is expected to extend its rally if the next government continues efforts to boost economic growth and prevent the country from returning to deflation, investment managers at Fidelity International said on Thursday.

The benchmark Nikkei 225 index reached a record high of 48,580.44 on October 9, surpassing the 1989 Japanese economic bubble-era peak, as political parties vied for influence ahead of a parliamentary vote next week to elect the country’s next leader.

Whether the market maintained its momentum hinged on whether the government would “continue the growth strategy [it had pursued] for the last decade”, rather than on who held the leadership position, said Miyuki Kashima, head of investments Japan at Fidelity.

During Japan’s so-called “lost decades” of stagnation and deflation, coupled with rising unemployment and hiring cuts, between the 1990s and 2010s, the government rolled out monetary and fiscal stimulus measures to battle slowing growth.

Kashima said it would be inconceivable for any new ruling coalition to reverse course and allow Japan to fall back into old deflationary patterns.

Japan’s economy is experiencing inflation. The economy was likely to continue to grow, with deflation having ended, according to Kashima. Companies were “investing, not holding up all the cash, which starts to create a positive spiral in the economy”.