Japan’s bulls go for a run as valuations tumble

Japanese shares are getting cheaper faster than any developed market as global investors regain faith in the world's third-largest economy, with valuations declining even as the benchmark Topix index rallies.

The price-earnings ratio for the nation's companies dropped to 14.6 times estimated profits from 17.1 at the start of this year because the Topix' 36 per cent surge, the biggest among 24 developed countries, has failed to keep up with analyst forecasts for 60 per cent income growth.

Nowhere have valuations contracted faster than in Japan. Multiples have increased in the US, France and Britain.

Bears say the best of the rally that began in November is already over because earnings have failed to translate into stock gains for much of the past decade.

Bulls say profit estimates are returning to pre-financial-crisis levels as the yen weakens amid confidence in Prime Minister Shinzo Abe's policies to end 15 years of deflation and the central bank's promise to double the amount of currency in circulation. Earnings estimates by analysts and companies are based on an even stronger yen.

"This time is for real," said Sergi Martin Amoros, the chief executive of Credit Andorra Asset Management in Andorra.