Global trade the key for Japan

Published at Jan 31, 2017, in Features

Japan’s economy is moving in the right direction...

Higher export volumes have helped Japan’s economy continue its improvement this year, with growth of 2.2% (annualised) during the September quarter writes Naoki Kamiyama, Chief Strategist nikko am.

This marks the third quarter in a row where Japan’s economy has expanded due to a boost in export volumes.

This growth, however, has been offset somewhat by weaker domestic spending, with some concerned that the benefits of Prime Minister Abe’s stimulus package have not yet made their way through to the Japanese consumer.

Corporate capital expenditure was also flat, with concerns around the outlook for the global economy and a rising Yen holding back business investment.

Policy measures can’t change everything and our view is that Prime Minister Abe’s policy settings appear to be quite well done.

Markets in Japan don’t like instability and the fact that investment markets are supportive of the Liberal Democratic Party possibly allowing Prime Minister Abe to run for a third term is evidence of that.

...driven by improving US consumption...

Economic conditions in the US continue to improve, with increased employment and higher wages resulting in a rise in consumer spending.

This rise in consumption has led to an increase in imports, predominantly from Japan and China, however these rising volumes have been impacted by the Yen gaining against the US dollar, which has pulled down prices.

There were some concerns within Japan’s government around comments made by President-elect Trump during his election campaign, and the impact that his government’s shift in fiscal policy will have on Japan’s economy.

While it is too early to say what the incoming US president will do, it would appear that the US-Japan relationship will be satisfactory.

Prime Minister Abe was the first foreign leader to meet President-elect Trump one-on-one, and we can see Japan working closely with the US for mutual benefit, which could include Japan taking the lead on the trade relationship.

...with manufacturing and financials expected to drive growth in 2017.

We expect that Japan will continue to be an export-driven economy through early 2017, with rising volumes suggesting that global demand will continue to improve.

Japanese exporters of machinery (predominantly to the US) and electronic parts (mainly computer and smartphone- related parts to China) should be the main beneficiaries of this improved demand.

Importantly, this demand could also provide an opportunity for these exporters to expand their production capacity through an increase in capital expenditure, which would also help to drive employment and wages higher.

And with Japanese exporters tending to pay higher wages and more bonuses than domestic-focused corporations, this should prove to be positive for domestic consumption.

As this export-led demand helps to drive the domestic recovery in Japan and inflation rises, we would also expect the Japanese financial sector, mainly larger retail banks, to benefit.

With Japan being mired in a deflationary environment for close to two decades, local banks have found it difficult to generate consistent earnings growth, especially when lending rates are so close to deposit rates.

This new inflationary environment, one that we see extending into early 2018, should allow Japan’s banks to drive loan growth and expand home mortgage volumes, an area that has been weak for some time.

In contrast, we would expect those sectors that derive the bulk of their earnings domestically will tend to lag those with export exposure, especially in the short to medium term.

Traditionally defensive sectors like healthcare, medical and food, will continue to be overshadowed by export-related sectors into 2017, as will gas and other energy-related sectors.

Three key drivers for Japan’s economy

As we move into 2017, we expect the continued recovery in Japan’s economy will be driven by three factors:

  1. An ongoing recovery in global demand

Japan’s economy should continue to benefit from rising global demand, with increased volumes (rather than prices) resulting in higher wages/bonuses, which in turn should drive domestic consumption.

While Japan’s main export market is China, its most important export market is the US, where ongoing wage increases, employment growth and higher consumer confidence should help to drive the current momentum in export demand.

  1. Move to inflationary policy settings

After almost 10 years of zero interest rates, the Bank of Japan now may be looking to increase interest rates to produce inflation.

We believe that a reasonable rate rise would be good for the Japanese economy, as it would help to strengthen the banking sector through increased lending, and reduce outflows from investors looking for higher yields overseas.

  1. A change in corporate governance

Better corporate governance has been a key tenet of Abenomics, one that has seen the attitudes of corporate managers in listed companies changing.

And as one of the largest institutional investors in Japan, we have been helping this process along, with the aim of improving corporate transparency, promoting a new stewardship code and pushing for the appointment of more independent company directors.

There is no doubt these corporate reforms will take time, and it is probably too early to say whether they will have the desired result.

What we do know is that, just like the Japanese economy, things are moving in the right direction.

Where to invest $1,000 right now

When the experts at Next Investors have a stock pick, it may pay to listen.

The Next Investors have been investing in ASX small cap stocks for years, with their best small cap picks yielding returns of 1,200%, 1,120%, 900% and 678%.

They have just revealed their hand-picked, FY2021 stock portfolio of high conviction long-term investments.

Click the link below to see what they are currently investing in.


S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

Publishers Notice

The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

Australian ASX Small Cap stocks | Why is Australia’s leading small cap publication

Founded seven years ago, is Australia’s leading and longest standing website for investor and finance news, education and expert opinion.

Published by StocksDigital, Finfeed was created to report daily on the comings and goings of ASX listed stocks in the small cap market.

As the first digital publication dedicated specifically to this space, Finfeed soon became the most trusted publication in the market, quickly garnering over two million page views – a number that continues to rise. provides its readers with informative articles that tackle the latest in market moving #ASX small cap news, plus exclusive content you won’t find anywhere else. It is aimed at those with an interest in investing, market education, company performance, start-ups and much more. is the only media organisation operating under the strength of a Financial Services License and is backed by leading journalists and analysts all with brands of their own.

The website aims to inform, educate and entertain with content that drills down into the heart of financial matters.

Finfeed is a leading source of investor and market information, with everything investors need to know about how to invest written in a way that anyone can understand. 

Over the years, the website has expanded beyond exclusively reporting on small caps, to profile Australia’s leading ASX listed small, mid and large caps as well as some of the country’s most successful CEOs and business leaders to find out what makes them tick.

Every day you will find fresh content covering:

Fast Facts

Over 4,000 articles published

Over 2.3 Million Page Views and counting

Over 10,000 followers on social media

Subscriber list growing by 2% monthly

Thanks for subscribing!