NEW YORK and LONDON, May 13, 2013 /PRNewswire/ -- Japanese Prime Minister Shinzo Abe's economic agenda must succeed on three fronts -- fiscal, monetary and growth policies -- to generate a lasting positive effect on that nation's economy, according to a white paper from Mellon Capital Management Corporation, the San Francisco-based global multi-asset manager for BNY Mellon.
Mellon Capital also cautioned that this agenda could affect the performance of various asset classes.
"The extensive liquidity injections by the Bank of Japan and the economic growth initiatives and reforms announced by the new Japanese government continue to have a significant impact on the relative performance of asset classes and local markets around the world," said Vassilis Dagioglu, managing director of asset allocation portfolio management at Mellon Capital. "Investors should study the effects of such policies when making asset allocation decisions."Regarding the challenge facing the Japanese economy, Sam Valtenbergs, senior quantitative analyst at Mellon Capital and author of the report, said, "Just getting one or two policy initiatives right will not be enough to generate a lasting, positive effect on the Japanese economy. The perceptions of both Japanese and non-domestic stakeholders must be changed so the country attracts foreign investment. This includes instilling confidence that assets will rise and firms can compete globally." The Mellon Capital report, Abenomics: A Final Roll of the Dice, notes that the Abe administration needs a flexible fiscal policy that accelerates public works projects, an easing monetary policy that achieves an inflation rate of two percent, and a growth strategy focused on deregulation, tax reform and immigration reform. The depreciating yen and economic stimulus resulting from Abe's policies have been reflected by a sharp uptick in the forward looking earnings revisions of analysts for the TOPIX, the Tokyo Stock Price Index, the report said. However, the report also cautions that Japanese stocks are overvalued on a fundamental basis and further upward earnings revisions would be required before Japanese equities become attractive to Mellon Capital.