And from Naoki Kamiyama on his outlook for the market:
Naoki Kamiyama: My year-end target for the TOPIX is 1,420, so I think there is about a 19% upside potential from levels on February 4, 2014. Earnings (EPS) growth is expected to be a little less than 10%—because of a consumption tax hike [from 5% to 8%]in April, I am conservative on EPS. I think we get some P/E expansion, mostly from global expectations of a recovery—not only from Abenomics, but a global economic recovery. Japan is outperforming other markets because its rate of change in EPS is higher than other markets and it has a higher sensitivity to the global economic recovery.
WisdomTree notes that forecasts and estimates have certain inherent limitations and may not actually come to pass.
How does the yen factor into your estimates?
Naoki Kamiyama: Our year-end forecast for the yen/dollar exchange rate is 108. I used a conservative forecast in coming up with EPS—I used 105 yen/dollar as average of the year. In my main scenario for the markets, I expect market confidence in the global recovery; especially the U.S. will improve.
The last U.S. employment report was not great, but I have stronger confidence in the U.S. recovery. I think the yen will be weaker in the first half, and the market will be led by exporters. I have a bear scenario, where the yen trades down to 95, and that would be a scenario if the U.S. recovery was weaker than expected and market participants were less confident in a global recovery—and things would go back to the original position before Abenomics started around 95 yen/dollar.
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