April 11, 2014 7:00 am JST

Japan experts see weaker yen, stronger stocks for first half of FY2014

TAKENORI OSAKE, Nikkei staff writer

TOKYO -- Market experts expect the Nikkei Stock Average will rise to around 16,000 and that the yen's downtrend will continue for the first half of the new fiscal year, which began in April, according to a Nikkei Veritas survey. Trading incentives include additional economic stimulus measures by the Japanese government and a continuing uptrend for the U.S. economy.

     Eiji Kinouchi, chief technical analyst at Daiwa Securities, said that overseas investors will leap back into the Japanese stock market if the government starts discussing economic stimulus measures ahead of its decision, later this year, on plans for a further sales tax hike in 2015. Hisao Matsuura, strategist at Nomura Securities, predicts that consumer spending and production will improve after the impact of the April consumption tax hike runs its course. Masayuki Kubota, chief strategist at Rakuten Securities Economic Research Institute, said that there will be increased expectations that companies revise earnings outlooks upward, as the first half earnings announcement season approaches.

     Experts remain divided over the government's second growth strategy, due to be released in June. Market observers are paying keen attention to reforms in the management of Japan's public pension program by the Government Pension Investment Fund, together with the lowering of the effective corporate tax rate. However, there is no certainty that these reforms will be included in the growth strategy. The government's decision not to include them in the growth strategy will place Japanese stocks under selling pressure due to overseas investor disappointment, said Hiromichi Shirakawa, chief economist at Credit Suisse Securities (Japan). Shirakawa predicts that the Nikkei average will fall to about 12,500 around June, because of the low possibility of additional easing by the Bank of Japan.

     Experts said the yen's downtrend will continue. The dollar could rise to 110 yen over the summer, said Citigroup Global Markets Japan's Osamu Takashima and Mitsubishi UFJ Morgan Stanley Securities' Daisaku Ueno. Investors will start factoring in a rise in interest rates in the U.S., while expectations increase for the introduction of additional easing by the BOJ. The increasing gap between Japanese and U.S. monetary policies is likely to accelerate selling of the Japanese currency.

     Selling pressure against the yen is strong from the supply-demand perspective, a result of Japan marking 20 straight months of trade deficit in February. Mizuho Bank's Daisuke Karakama predicts that the dollar will continue to rise moderately to around 104 yen at the end of September. However, if the BOJ foregoes additional easing, the dollar could fall to around 100 yen, said JPMorgan Chase Bank's Junya Tanase.