Assessing the Recovery of the Nikkei Average to the 20,000 Yen Level(Jun 2015)

◆Is This Time Different?: The Nikkei stock average recovered to its previous high, passing the 20,000 yen barrier in the closing price on April 22, 2015. From a macro-economic viewpoint, how should we interpret the recent stock price highs? The type of overheating experienced in the housing and real estate markets during the bubble era have not been observed, and the three excesses which were the source of Japan’s long-term stagnation in the past are now judged to have been resolved. The current Japanese economy is moving toward the perfect opportunity to completely shed itself of the Lost Decades, leaving behind the negative legacy of the past. On the other hand, we want to reconfirm the importance of the tasks which have been set before the Japanese economy and which have been put in perspective by this new growth phase in the stock market. These are (1) bringing an end to deflation, and (2) implementing a bold growth strategy.

◆Main economic scenario for Japan: In light of the 2^nd preliminary Jan-Mar 2015 GDP release (Cabinet Office), we have revised our economic growth outlook. We now forecast real GDP growth of +2.0% in comparison with the previous year for FY15 (+1.7% in the previous forecast) and +1.9% in comparison with the previous year for FY16 (+1.8% in the previous forecast). We expect Japan’s economy to gradually recover due to the following factors: (1) Continuation of the virtuous circle brought on by Abenomics, and (2) The gradual firming up of exports centering on the US.

◆Four risk factors facing Japan’s economy: Risks factors for the Japanese economy are: (1) The Triple Weaknesses – a weak bond market, weak yen, and weak stock market due to loss of fiscal discipline, (2) The danger of China’s economic bubble collapsing, (3) tumult in the economies of emerging nations in response to the US exit strategy, and (4) a worldwide decline in stock values due to geopolitical risk.