Euphoria grips the equity market

After what proved to be only a brief pause, the slide in the yen and associated surge in the Nikkei have both resumed with a vengeance. A yen/dollar exchange rate of 100 and a further rally to 13,000 on the Nikkei are certainly plausible targets for the near term. However, while Japanese equities may look “cheap” compared to their own recent history, but they are now fairly valued relative to their peers. The upshot is that we would be wary of chasing this particular Shinkansen. And even for those already on board, there are at least three reasons to be cautious.