Japan: Will history repeat itself? - Nomura
Developments in the Japanese economy and financial market in 2017 look similar to the situation in 2005 in many ways: a landslide victory for the LDP, acceleration of foreign flows into Japan’s equity market, tightening by foreign central banks, and sustained portfolio outflows by Japanese investors, explains the research team at Nomura.
“2006 was the year of exit policy for the BOJ, and market expectations for BOJ normalisation have gradually risen recently too. However, we expect the government and BOJ to take a more cautious exit strategy this time. Prime Minister Abe’s negative view of the (old) BOJ is likely rooted in the failure of the BOJ’s exit policy in 2006-07. He will not want to repeat that mistake. We see a risk of more prolonged accommodative policy unless positive inflation surprises materialise. JPY still traded weakly in 2006-07 even after the BOJ started normalisation, while the monetary policy divergence this time will be even clearer into 2018.”