The North Korea crisis has led to a 1000 point decline in the Nikkei. Japan is the cheapest developed world stock market in 2017. Any spasm of risk aversion leads to a rise in the Japanese yen and a correction in its Nikkei Dow averages lower. The Japanese stock market trades at 13.8 times forward earnings, 1.3 times book value and a 2.3% dividend yield, a significant discount to Wall Street, Europe and even several Asian emerging markets. There is no “central bank taper” risk in Japan as Governor Kuroda’s Bank of Japan is committed to its zero yield monetary policy, the most aggressive quantitative easing program relative to GDP on the planet. The Bank of Japan’s monetary policy will not change even though the Japanese economy has emerged from its deflation black hole and GDP can well grow at 1.5% in 2017 though inflation is nowhere near Kuroda-san’s 2% target. This means any monetary tightening by the Fed or the ECB will only cause the Japanese yen to depreciate against the US dollar and the euro, a bullish omen for Marunouchi.
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