The Nikkei has seen a sharp climb since the turn of the year, however in the Fathom economists’ view more change is needed for the purple patch to develop into a long term rally.
The new Japanese corporate governance code came into force on 1st June which combined with the QE programme sent stocks upwards.
However a loosening of the corporate purse strings is key if this initial lift is to continue.
“Unlocking Japan Inc.’s spending power is the key to the success of Abenomics, and to a lasting, sustainable Japanese recovery – and not before time.” Fathom said. “It should help to encourage companies to use their extensive cash piles, partly for capital investment, partly to pay dividends. The government’s promises to enhance corporate governance are likely to spur equities in the short term.”
Fathom said that Prime Minister Abe must take the lead in persuading corporate Japan to abandon its ‘long-entrenched risk aversion’ and start to spend.
There has been strong non-residential business investment in Q1 which Fathom sees as encouraging, but it said there is room for more, and business investment has been broadly flat as a share of GDP since 1990.
