Pieces fall into place for sustained recovery in Japanese equities

Japan has taken a long time to shake off its status as East Asia's faltering economic powerhouse but after a series of false dawns the signs of economic recovery are becoming ever clearer. That is good news for investors.

'This may be the beginning of a decade's appreciation of the Tokyo stock market,' Nomura Securities chief equity strategist Chisato Haganuma told South China Morning Post last week.

The signs have been around for some time. Tokyo's Nikkei 225 Index now hovers near 16,260 points compared with 11,430 points only 12 months ago.

But, according to Mr Haganuma, the long-term appeal of Japanese equities hinges on three factors: macro-economic growth fuelled by capital investment and private consumption; improved corporate earnings driven by growth in other Asian economies; and the reallocation of capital by local investors away from traditional property plays.

Figures to support the first have come in a rush in recent months.

The Organisation for Economic Co-Operation and Development estimated growth of 2.4 per cent for Japan last year and is forecasting solid growth of 2 per cent annually to 2008 while Japan's domestic corporate goods prices have risen for 23 consecutive months with the largest monthly rise in 15 years coming last month. The industrial output index posted a record high in December while consumer spending has grown for four consecutive months.