Market strategist Jesper Koll believes that Japan’s Nikkei 225 could reach an impressive 40,000 points within the next 12 months. Koll’s positive outlook is based on several factors, including a strong rebound in business confidence and a supportive fiscal policy. If this prediction comes true, it would mean that the Nikkei would surpass its all-time high of 38,195, achieved on December 29, 1989.
During that time, Japan was experiencing a real estate bubble. However, when the property market collapsed, it led to a crash in equity and land prices, ultimately resulting in a prolonged period of low economic growth that still persists today. Despite this challenging economic backdrop, Koll, an expert director at financial services firm Monex Group, remains optimistic about the future of Japan’s market.
Koll highlights the increasing interest from investors and the shift in mindset among Japanese CEOs. He notes that after 30 years of holding onto retained earnings, Japanese CEOs are finally starting to invest in people and their businesses. With this positive momentum, Koll sees no reason why the Nikkei cannot surpass the 40,000 mark in the next year.
One factor that could potentially impact Koll’s forecast is the Bank of Japan’s (BOJ) monetary policy. The BOJ has maintained an ultra-loose monetary policy for over two decades. When asked if he considered the possibility of the BOJ tightening its policy, Koll questions the need for change if there is no push factor for the BOJ to do so. He believes that changing monetary policy solely for the sake of change would be nonsensical.
Koll suggests that BOJ governor Kazuo Ueda is adopting a “watchful waiting” stance, closely monitoring the economic data coming out of Japan. He emphasizes that the upcoming spring wage negotiations in the following year will be a crucial indicator of whether the deflation spell is broken and if Japanese CEOs are truly committed to investing in their workforce and capital expenditure. Only then will the BOJ consider normalizing interest rates, a process that could take at least six to nine months.
Alternate Viewpoint
While Koll is optimistic about the Nikkei’s potential, IG analyst Tony Sycamore holds a slightly different perspective. Sycamore agrees that there is still room for growth in the Nikkei, but he believes that much of the positive news has already been factored into the market. With the Nikkei already experiencing a 27% gain year-to-date, Sycamore predicts that the rally may slow down between the 36,000 mark and the all-time high of 38,195 before settling at around 33,000 in 12 months’ time. This projection is based on the expectation that the BOJ will tighten its monetary policy.
Sycamore also draws insights from history, cautioning against the creation of another asset bubble in Japan. He highlights that the BOJ has spent the last three decades recovering from the previous asset bubble and would be hesitant to repeat the same mistake.
However, Koll counters this viewpoint by stating that it is extremely difficult to argue that Japanese assets are overvalued. He points out that the Japanese market is trading at a 14 times price-to-earnings ratio, and half of the companies are trading below book value. Additionally, while real estate prices have reached levels not seen since the bubble, they still remain affordable when considering current mortgage rates and wages. Koll argues that there is no evidence of an asset bubble causing social disruption or discomfort within the Japanese economy or society.
Market strategist Jesper Koll’s optimistic outlook for Japan’s Nikkei 225 suggests that it could reach 40,000 points within the next 12 months. This projection is based on positive fundamentals, including a rebound in business confidence and a supportive fiscal policy. However, an alternate viewpoint from IG analyst Tony Sycamore suggests that while there is still potential for growth, much of the good news may already be priced into the market. The Bank of Japan’s monetary policy decisions and next year’s spring wage negotiations will play crucial roles in determining the future direction of Japan’s market.
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