Why investors should look past Japan’s market wobble

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Recent volatility shouldn’t deter long-term investors as the world’s fourth-largest economy emerges from decades of lacklustre growth

The new dawn that appeared to have finally broken for investors in the land of the rising sun has not been without a few storm clouds in recent weeks.

Yet, the yen had also been integral to many carry trades whereby investors borrowed in yen often to buy U.S. mega-cap stocks. Until recent weeks, Japan had been a top-performing equity market to mid-year, up 15 per cent and finally surpassing its 1989 peak, rallying “against a backdrop of rising global inflation … helping pull the economy out of decades of deflation,” says Maya Funaki, portfolio manager, Asian equities, at RBC Global Asset Management Ltd. in Hong Kong and lead portfolio manager of RBC Japanese Equity Fund.

Trade agreements brokered with the Biden Administration also helped the investment case for Japan, especially for semiconductor manufacturing and related companies, says Jim Thorne, chief market strategist with Wellington-Altus Private Wealth Inc. in Toronto. However, there are still risks, as recent market volatility illustrates, Mr. Mordy notes. Japan faces labour challenges because of its aging population and low immigration relative to other developed nations.

 

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