Japanese stocks stand out as winners over the past few years (especially in Yen terms) from the working of Abenomics on the otherwise stagnant economy. But over a longer term horizon the direction of the market seems less uncertain. The demographics of Japan are not in favor of the growth prospects that are being projected, thus the country will not be able to rely on the service sector at home for this growth. The country will have to start looking out of the country for a lot of that growth as well as financing (since many of the aging Japanese are holders of JGBs). As a result of globally competing on financing rates as well as customers the companies will be forced to cut costs in order to stay competitive to the outside world.
Because of this need I would expect to see companies outsource tasks such as accounting and tech services to other regions that are less expensive (think India or China) and have their manufacturing sector automated as well. Automation companies could also be a good play on China which still relies on scores of people to do simple tasks because of their low wages, which is changing. Despite the massive QE in Japan I think that JGBs will no fare well over a longer term horizon as well. Should Abenomics be successful, you can expect inflation to have adverse effects on the bond prices, if inflation fails to pick up and the economy slip back to a deflationary spiral one has to wonder how sustainable the 200+% of GDP stockpiles of government bonds will fare with less and less domestic buyers available.
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June 2020
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