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Japan: Supported by EPS Growth

  • Growth indicators are improving in Japan, suggesting positive momentum in earnings growth in coming months. As we head toward the end of 2017, investors’ focus may shift towards earnings, which is likely to be a key support for equities.
  • Retail sales gathered steam: Retail sales rose 3.2% YoY in April, picking up from a 2.1% YoY gain in March. Citi analysts now expect the second quarter to see a fourth consecutive quarterly gain.
  • Industrial production picked up speed: Industrial production increased 4.0% MoM in April after decreasing 1.9% MoM in March. Going forward, Citi analysts expect industrial production to maintain an uptrend, albeit at a slower pace, as 1) real exports are rebounding, 2) the high-tech cycle is stronger than expected, 3) durable goods consumption has most likely entered a recovery phase, and 4) business investment is expected to pick up gradually in the coming months.




  • Japanese equities may be range-bounded in the near term with downside risk likely limited given BoJ’s ETF purchasing while yen strength could limit the upside. Citi’s TOPIX forecast is 1,675 for end-December 2017 and 1,725 at end-June 2018.
  • Sectors: Citi analysts upgrade IT to neutral from underweight, where structural growth is increasingly evident. Citi also lowers consumer staples, where valuations once again look demanding, to underweight from neutral. Finally, Citi sees strong earnings recovery momentum in the export and cyclical sectors as we head into 2018, and in the past these sectors tend to see adjustments between May and October for seasonal reason.

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