Japan is entering a new growth stage

Market Development: On the first day of trading in 2023, the Japanese market declined over ongoing concerns of a US economic downturn. That said, the market recovered following the US market, after seeing a slowdown in wage inflation which brought about expectations for fewer rate hikes in the US.

16 Feb 2023

Market Development: On the first day of trading in 2023, the Japanese market declined over ongoing concerns of a US economic downturn. That said, the market recovered following the US market, after seeing a slowdown in wage inflation which brought about expectations for fewer rate hikes in the US.

In mid-January, the market rallied on the back of China’s decision to halt its zero-COVID policy, which fuelled expectations of an economic recovery in China, pushing up China-related stocks and commodities around the world.

The Yen strengthening against the US Dollar pushed the market down as concerns arose around the BoJ revising its monetary policy at its 18th January meeting while the banks rallied. However, the BoJ maintained its policy and the market rebounded.

In late January, the Japanese market rallied on the strength of US Technology stocks and expectations for the Fed to end rate hikes earlier than expected. Hopes for a recovery in China also supported the market. In January, the TOPIX closed the month at 1,975.3 (up 4.4% MoM) and the Nikkei 225 at 27,327.1 (up 4.7% MoM).

Economic sensitive sectors did well and 28 out of 33 sectors gained. The top five performers were Steel, Electricals, Machinery, Metal Products and Glass & Ceramics. The bottom five performers were Pharmaceuticals, Marine Transportation, Fishery & Agriculture, Insurance and Land Transportation.

The 10Yr JGB yield started at 0.422 and, due to the fear of the BoJ changing its monetary policy, jumped to 0.575 at one point (beyond the 0.5% upper limit set by the BoJ on 13th January). However, when the market saw the BoJ maintaining its policy, the yield lowered to 0.361 before climbing again to end the month at 0.496.

The JPY against the US Dollar began at 131.12 and appreciated significantly to 127.23 before ending the month at 130.09. The crude oil price opened at 80.26 and declined to 72.46 as an economic slowdown in the US became a concern, but recovered when China halted its zero-COVID policy, closing at 78.87.


The future outlook is improving for the Japanese economy. Industrial production in December 2022 was almost unchanged at -0.1% MoM, better than the market consensus of -1.0% MoM. The government estimates that industrial production in January 2023 will be flat (±0% MoM), and rise by 4.1% MoM in February.

Retail sales in December increased to 3.8% YoY, higher than the market estimate of +2.8% YoY, with the jobless ratio at 2.5%, unchanged from November. The nationwide core CPI in December rose 4.0% YoY, the highest rise since December 1981.

According to the Economy Watchers Survey of Business announced on 8th February, the overall current conditions DI for January 2023 fell by 0.2 points from December to 48.5. That said, the outlook DIs improved substantially from January, with the household-related DI increasing by 2.6 points and the corporate sector DI rising by 2.9 points. It is likely that this reflects the impacts of the pandemic easing and the expectations of a recovery in consumer sentiment and inbound tourism.

Other factors may be the Yen’s correction from excessively weak levels, coupled with improved forecasts for earnings as imported raw material costs decline.
Inflation in Japan is much lower than in other major economies, but it may be hovering around 2.5-3.0% during H2 2023 as wage hikes in April 2023 are expected to be more than 3.5%, with the costs of goods and services expected to rise from now on. The IMF forecasts that the Japanese economy will grow the most among G7 countries in 2023.

We argue that the Japanese economy is entering a new growth stage, with 2.5% growth per annum expected for several years to come, as:

  1. Excess savings accumulated during the pandemic should spill over into consumption over time;
  2. The current level of the Yen’s weakness should encourage manufacturers to return overseas facilities to Japan, and foreign corporations and investors should be tempted to increase investments in Japanese assets;
  3. An anticipated sharp recovery of inbound tourists would contribute handsomely to consumption and CapEx;
  4. Fiscal spending should rise soundly and inevitably as the government decided to increase defence spending from 1% of GDP in FY2022 to 2% of GDP in FY2027, together with a continuous expansion in spending to strengthen national land resilience. We expect the TOPIX to rise towards 2,500 by the end of 2023.

We believe the main driver of global growth will shift from IT to infrastructure investment for a few years to come. Industrials, Materials and Financials should lead the rally, with inbound related stocks being picked up from time to time.

Portfolio Development

The net asset value per unit for the Nippon Growth (UCITS) Fund on a Japanese Yen basis as of 31st January 2023 went up 4.7% compared with that of 30th December 2022, whilst the TOPIX TR index rose 4.4% during the same period. The Fund added no new names to the portfolio and no stocks were sold out.

The Fund continues to be overweight in economically sensitive sectors with cheap valuations, such as Trading Companies, Banking and Steel, while defensive sectors, such as Foods, Pharmaceuticals and Utilities; and IT-related sectors, such as Electricals and Communications, continue to be underweighted. We will increase the Fund’s exposure to inbound tourism-related stocks.

As always, we invite investors and prospective investors, to contact us should they wish to understand our views on the current situation and the positions held in the portfolio. Please do not hesitate to contact us for further information.

Adam TurbervilleAdam Turberville
+44 1481 742380


The views and statements contained herein are those of Evarich Asset Management in their capacity as Investment Advisers to the Funds as of 14/02/2023 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.