The return of Goldilocks

Japan’s economy probably recorded the fifth straight quarter of growth in Q1, the longest streak since 2005. The unemployment rate is at multi-year lows and corporate profit margins at record highs. However, there is still little sign that capacity shortages are fuelling price pressures. Accordingly, we still expect the Bank of Japan to leave policy settings unchanged for a prolonged period which should help to keep the yen weak. In turn, this should provide a fillip for the Nikkei, but we think that further upside is capped by elevated valuations.