We wrote recently about the current valuation of Japanese equities, specifically how the current dividend yield looked compared to the current 10-year yield for the Japanese government bond (JGB).The following chart was used to tell that particular story.
What Motivates Japanese Citizens to Potentially Look Toward Japanese Equities?
To summarize: those looking at the trailing 12-month dividend yield of the MSCI Japan Index will realize that it is approximately 1.0% higher than that of the 10-year JGB yield. Traditional avenues of fixed income investment in Japan, compared to equities, offer significantly less yield with no potential growth of income. Moreover, if Japan’s central bank is successful at its stated goal of generating 2% inflation, that 0.7% offered in yield would suffer an after-inflation decline or loss in purchasing power1.
By contrast, with Japanese equities one has the potential to see dividends grow over time. Over the last 10 years, dividend growth in Japan has averaged about 7.6% per year2. Dividend-paying stocks could thus be an attractive income source that offers a potential inflation hedge.