While we find U.S. equities attractive, Japan has become a more interesting market, mainly because of the broad political support for the new prime minister, Shinzo Abe. To get Japan out of its deflationary spiral, Abe has pushed forward a number of new monetary and fiscal policies. Both the yen and the Japanese stock market have responded. Stocks have rallied while the yen has fallen in value, making Japanese exports more competitive.
The Abe government has installed new central bank governors to depart from the traditions of the Bank of Japan by stimulating the economy through a powerful dose of monetary easing. The measures are both quantitative, to expand the Bank's balance sheet, and qualitative, to change the mix of securities it owns. It is a challenge to implement these policies effectively, and we are monitoring the progress.
Also encouraging is that the Bank of Japan's efforts are not occurring in a vacuum. The Abe government is easing fiscal policy and introducing a series of structural reforms, which may ultimately be most important for creating sustained economic momentum.
After many years of economic dormancy, Japan was beginning to recover in recent years until the 2011 Fukushima earthquake halted its progress and reverberated in manufacturing supply chains around the globe. But with this new positive direction, Japan could be restored as a contributor to global growth.