Japan bulls have proposed a range of explanations to justify the outperformance of the TOPIX relative to other equity indices over recent months. While there are some signs that firms are enjoying stronger pricing power, we aren’t convinced that a sustained improvement in corporate profitability is on the cards. With the yen set to strengthen again over the coming years as overseas central banks loosen policy, we expect Japan’s stock market to underperform those elsewhere over the next couple of years.
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