Japan: From Laggard to Outperformer

With the reversal in the dollar-yen downtrend, Ron Napier, head of Napier Investment Advisors, says it’s a good time for investors to put some money back into the Japanese equity market.

“The yen…is going to fall and what I think that’s going to mean is Japanese stocks could actually outperform during 2011 after being laggards for so many years,” Napier told CNBC.

The Japanese market has been outperforming “very, very strongly” over the past two weeks, he said. The Nikkei index has gained 8.9 percent since the start of November.

“I think that’s going to continue for a while especially if the yen keeps trading in a different fashion.” Looking forward to next year, Napier predicts the yen will no longer be regarded as a flight-to-safety currency. “That’s a very important change for Japan.”

“The Japanese government is very much into this (weakening the yen). They want the yen to weaken and they are willing to intervene if the yen strengthens,” he added.

The country’s Finance Ministry intervened in markets on September 15 for the first time in more than six years, selling an estimated 2 trillion yen ($23.95 billion) after the currency rose to a 15-year high against the dollar.

Mohammed Apabhai, head of Asia Pacific trading strategies at Citi, concurs with this view and believes the strengthening dollar will benefit exporters that have been hit badly by the appreciation of the Japanese currency this year.

“If there is going to be a year-end covering trade between now and the end of December, then what you will see is flows going out of Asia and into Japan,” Apabhai said.

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