13 May 2014
USD/JPY to be supported by Japan's growth, GPIF - Nomura
FXStreet (Bali) - Nomura thinks that based on the scheduled update of growth in Japan due in June, along with expectations for a more diversified GPIF portfolio, Japanese stocks and the USD/JPY will benefit from it.
Key Quotes
The scheduled update of growth strategy in June will likely support Japanese equity markets and the USDJPY. In this update, the government is likely to include its plan to cut the corporate tax rate in April 2015 to revive the economic momentum.
The size and pace of the proposed corporate tax cut remains unclear, but PM Abe is likely to advocate that the rate will be lower than 30% in 3-5 years. Market expectations for corporate tax rate cuts are rising, but the government‟s commitment to a lower corporate tax rate will limit downside risk of Japanese equities and USDJPY, we believe.
Furthermore, a change in the GPIF target portfolio is likely to happen in June, after the fiscal review of public pension funds concludes.
While market expectations for the GPIF target portfolio are high, the announcement in June should be a positive surprise for the market, as only 22% of offshore investors expect the target portfolio change by end-June, based on our client survey.
The update on growth strategy should also include a plan to change the GPIF's governance structure to ensure a more diversified GPIF portfolio going forward.
Key Quotes
The scheduled update of growth strategy in June will likely support Japanese equity markets and the USDJPY. In this update, the government is likely to include its plan to cut the corporate tax rate in April 2015 to revive the economic momentum.
The size and pace of the proposed corporate tax cut remains unclear, but PM Abe is likely to advocate that the rate will be lower than 30% in 3-5 years. Market expectations for corporate tax rate cuts are rising, but the government‟s commitment to a lower corporate tax rate will limit downside risk of Japanese equities and USDJPY, we believe.
Furthermore, a change in the GPIF target portfolio is likely to happen in June, after the fiscal review of public pension funds concludes.
While market expectations for the GPIF target portfolio are high, the announcement in June should be a positive surprise for the market, as only 22% of offshore investors expect the target portfolio change by end-June, based on our client survey.
The update on growth strategy should also include a plan to change the GPIF's governance structure to ensure a more diversified GPIF portfolio going forward.