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Resolution AM highlights Japanese inflation prospects

ResolutionAsset Japan fund manager Natasha Chetwynd believes the return of inflation in the country after 15 years could trigger an overdue shift into equities.

Chetwynd says that although it will take some time to push through, the inflationary mindset will see the Japanese eventually put more of their money into the stock market

She also believes that given Japan has the highest savings of any of the developed countries, investors are likely to spend more, however this may be offset by a slowdown in the US, European or emerging markets economies given Japan’s cyclical nature.

Despite this, Chetwynd says that with stocks trading on 8-12 times earnings the market is looking cheap on a historical basis, while companies are also posting conservative numbers that may not reveal their full earnings prospects.

She says: “The return of inflation in Japan is very good news after such a long period of deflation. It might put pressure on margins but the declining returns from bonds might prompt investors to sell out of fixed interest and into equities, which would be very positive shift.

“This will be a long drawn-out process but I think individuals are getting that crucial inflationary mindset back now, and that’s very good news. There are potential challenges ahead – we would like to see a change of Government sooner rather than later, for instance – but we are more positive than most on Japan.”

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