The Nikkei 225 has risen 31% this year, but currency movements have offset these gains.

With the Yen trading at a 12 month long low to the US$, Japan’s Finance Ministry warned against speculative moves against the ¥. The authorities were not ruling out any option to deal with currency volatility.

The reforms in corporate governance led by the Tokyo stock exchange have improved the returns on Japanese stocks. While the reforms will take several years it is likely to see increased pressure on companies to unwind cross shareholdings and restructure of non-profitable businesses. These changes should foster a permanent change in corporate mentality and lift profitability, dividend levels and share prices in Japanese companies.

The Japanese economy has proved to be resilient. Inflation has long been absent from the Japanese economy now stands at 3.3% while interest rates remain at -0.1%. GDP annual growth is 1.6%.

Japanese stocks have had a good year. The Nikkei 225 has risen from 25736 points at the opening of trading in January and now stands at 33725. A rise of 31%. However, currency movements have offset these gains for foreign investors.

The market performance of the Nikkei 225 has been broad spread and balanced unlike for example the US S&P500 as the largest part of this year’s returns have come from a small number of tech companies, while in Japan returns have been less concentrated.

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