Gregory, head of global equities at Psigma Investment Management, said: “Every time Japan has looked to be on the brink of a turn for the better it feels like events have conspired to spoil the party and sent stocks into a tailspin and left strategists with egg on their face.”
He cited the Livedoor securities fraud scandal in 2006, the tsunami and nuclear accident of March 2011 and the recent dispute with China over the sovereignty of the Senkaku Islands as examples of events that have “conspired to kill off any attempt at a sustained bull market for the Nikkei in what feels like an eternity”.
“It is hardly surprising that market strategists feel that [Japanese companies] are a ‘busted flush’ and by the events of recent years they cannot shout from the rooftops that Japan is finally on the turn; but it is just possible that this may be the case,” he added.
Gregory argued that the upcoming Japanese election, which will be held in December, could offer the opportunity for change.
Shinzo Abe, the opposition leader in Japan, last week said he would push the Bank of Japan to embark on unlimited open-ended quantitative easing and use fiscal stimulus and a public works programme to reignite the economy if elected into power.
Opinion polls suggest Abe will be elected and replace incumbent prime minister Yoshihiko Noda. Gregory said this could help the end the negative feedback loop that drives the stock market’s persistent weakness, should Abe follow through with his policy promises.
“Every time the market moves into a risk-off phase the yen rallies, hurting Japanese exporters which are the lifeblood of their economy and require a lower currency in order to be competitive,” the commentator said.
“If the government could force policy makers to enter into a strategy genuinely aimed at weakening the yen, the impact on earnings for companies could be very material indeed.
“This in turn could lead to a big improvement in the domestic consumer economy, potentially moving from its permanent negative feedback loop to a virtuous circle and sending stocks massively higher, moving Japan from a busted flush to a full house.”
