Global investors ditched Japanese stocks at the fastest pace in four years last week, amid jitters over emerging markets and doubts over the timing of another shot of stimulus from the Bank of Japan.
The BoJ’s aggressive pursuit of its 2 per cent inflation target was the main driver behind record inflows from abroad into Japanese stocks last year, as investors bet that assets would be boosted by the pledge to double base money by the end of 2014.
But on January 22, Haruhiko Kuroda, BoJ governor, said that the consumer price index was expected to level off until the summer, at about 1.25 per cent. That marked a shift from the guidance given in the previous month, when the BoJ said that CPI would likely rise “for the time being,” and was seen by some as a signal that the BoJ would not take a moderation in price rises as a cue to ramp up its easing.
That, combined with rumblings in emerging markets caused by the gradual exit from ultra-easy monetary policy by the US Federal Reserve, prompted some shorter-term fund managers to cut Japan exposures in anticipation of better opportunities elsewhere.
According to data released by the Tokyo Stock Exchange on Thursday, foreign investors dumped a net Y752bn ($7.4bn) of stocks in the last week of January – the highest weekly figure since a Y916bn outflow in June 2010, amid the first phase of the eurozone crisis.
Total outflows so far in 2014 come to $9.6bn, almost four times the volume of the next most-sold Asian nation, South Korea, at $2.5bn.
Even before Mr Kuroda’s January comments, the BoJ’s steady progress towards its price target since the autumn had caused some investors to pare back their expectations for a further round of monetary easing.
“For a while we’ve thought it unlikely that the BoJ will move again until September, when it has had time to examine the impact of the tax hike in April,” said one London-based macro hedge fund manager, who has scaled down his Japanese exposure from a peak of 90 per cent of gross assets last May to about 2 per cent now.
“Over the past few weeks we’ve seen a lot of peers and the brokerage community start to echo that view.”
However, even without another nudge from the BoJ, some analysts stress that the Japanese market should offer macro funds plenty of upside. Nicholas Smith, Japan strategist at CLSA, notes that profit growth at Japanese companies is averaging about 45 per cent, compared with 5 per cent in the US.
“If you’re complaining that the US has been only going up on quantitative, and you’re getting less QE, then logically you’d want to be in Japan – the last bastion of monetary incontinence.”