Rearranging the deckchairs

In light of our growing concerns about the outlook for Japan’s economy and the risks of a fiscal crisis, we are cutting our end-2011 forecast for the Nikkei 225 from 10,750 to 9,000. This might appear to sit oddly with our forecast that the yen will fall back to around 90 against the dollar, a move which would otherwise provide some relief to exporters. But we expect yen weakness to be driven by problems at home rather than optimism about developments overseas.