Japanese Stocks: EWJ Forms Golden Cross After 2 Years
Japanese Stocks $iShares MSCI Japan ETF(EWJ)$ form a Golden Cross for the first time in more than 2 years.
The last one sent prices soaring 29% over the next 14 months.
$Japan Smaller Capitalization Fund(JOF)$ ,
The logic behind the bullish outlook for Japanese stocks in 2025 is as follows:
Economic Recovery and Growth
Steady Economic Growth: Japan's economy is expected to continue its recovery, with steady growth in corporate earnings. The "virtuous cycle" of wage increases and mild inflation is also seen as a positive factor.
GDP Growth Outlook: There are expectations of further GDP growth in 2025, which will provide a solid foundation for the stock market.
Monetary Policy and Interest Rates
Interest Rate Adjustments: The Bank of Japan (BOJ) has been raising interest rates and is expected to continue doing so in 2025. This will narrow the interest rate gap with the US, making Japanese assets more attractive.
Yen Appreciation Potential: The potential for yen appreciation due to the narrowing interest rate gap is also seen as a positive for Japanese assets.
Corporate Governance and Profitability
Corporate Governance Reforms: Ongoing reforms in corporate governance are expected to improve profitability. The unwinding of cross-shareholdings and increased shareholder returns are key trends.
Earnings Growth: Steady earnings growth is expected to continue, with corporate share buybacks also supporting stock prices.
Market and Investor Sentiment
Foreign Investor Interest: While foreign investors' appetite for Japanese stocks has been sluggish, there is potential for increased interest as the market outlook improves.
Domestic Investment: Domestic investors are also expected to continue investing in the stock market, further supporting prices.
Technical Indicators and Market Trends
Golden Cross: The formation of a Golden Cross in the iShares MSCI Japan ETF (EWJ) is a technical indicator that suggests a potential upward trend in the market.
Market Outlook: The medium to long-term outlook for the Japanese stock market remains positive, with expectations of further gains in major indices like the Nikkei 225 and TOPIX.
Overall, the combination of economic recovery, monetary policy adjustments, corporate reforms, and positive market trends is driving the bullish outlook for Japanese stocks in 2025.
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