We expect Japan’s GDP growth to slow next year as the economy is now operating above capacity. Price and wage pressures should strengthen somewhat but inflation will remain well below the Bank of Japan’s 2% target and monetary policy settings will therefore remain unchanged. With yields overseas likely to rise, the yen should weaken and this should in turn lift the earnings of Japanese multinationals. But with valuations increasingly stretched, we don’t see any further upside for the Nikkei next year.
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