Japanese stocks could be ready to take off

Credit Suisse upgraded Japanese equities to overweight andincreased itsmid-2017 target for the Nikkei to 20,000.The outlook was based on the expectation of a weaker yenaddingto Japanese company earnings.The Bank of Japan is expected to increase monetary stimulus to keepJGB yields at zero (as investors move towards USTs), thus driving the yen lower."Yen weakness tends to drive Japanese equity outperformance in local currency terms, with each 10% off the yen adding c. 15% to EPS, on the basis of a simple correlation," Credit Suisse analystAndrew Garthwaite saidin a research note on Wednesday.Another positive is that selling by foreign investors has slowed. Credit Suisse is confidentthat stocks could rise once foreigners become net buyers as historically, "when sentiment among foreign investors does change toward Japan, it has tended to be extremely impactful."The firm also sees Japanese equities as undervalued in the global context. "Japan trades on a 5% forward PE discount to European equities, and a 20% discount to the US," it noted.SEE ALSO:DEUTSCHE BANK: The rotation from bonds to stocks is just getting startedJoin the conversation about this storyNOW WATCH: The 'Apple of China' just unveiled a phone that's more powerful and better looking than the iPhone
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