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2016 Outlook

GROWTH AMID VOLATILITY  |  International  |  January 2016
Pack Your Bags for Japan

Spike in Tourism Is One Bright Spot in a Mixed Economic Outlook for the Island Nation

“The real question for Japan is, can quantitative easing and better corporate governance really provide a meaningful tailwind to the economy? Frankly the jury is still out. That being said, I still think it’s very much a stay-the-course moment. Valuations are low and the companies that I’ve been interested in lately have been more domestic oriented, rather than the pure exporters.”

Andrew B. Suzman Portfolio Manager New York office 23 years of experience (as of 12/31/16)

More Tourists Are Visiting Japan — and Bringing Their Wallets With Them

Source: Thomson Reuters Datastream. Monthly visitor arrivals to Japan as of November 30, 2015. Direct purchases in Japan by visitors as of September 30, 2015.

Japan’s economy continues to decelerate, despite Prime Minister Shinzo Abe’s ambitious economic reform agenda, historically low interest rates and unprecedented central bank stimulus measures. Financial turmoil in China has made matters worse, and it will be difficult for Japan to mount a sustained recovery without some stabilization in its largest trading partner.

Investor expectations are high for additional quantitative easing (QE) from the Bank of Japan (BoJ). That should further weaken the yen and provide a boost to exports. Every month, the BoJ is buying ¥6 trillion to ¥8 trillion of assets in a bid to boost inflation. It is by far the largest QE program in the world as a percent of GDP.

Other opportunities are emerging among certain sectors of the economy, particularly tourism and retailing. The government recently loosened visa restrictions for those wishing to visit Japan — a move that has resulted in a flood of new tourists and an increase in retail purchases by foreign visitors. Despite China’s slowdown, the largest influx of tourism is coming from China.

Tourism is expected to boost Japan’s GDP growth rate by as much as 0.4 percentage points. Japan is on target to reach 20 million visitors a year by 2020. Currently, tourists spend about ¥2.6 trillion ($21 billion) a year on hotels, shopping and other travel-related expenses. Select companies in the hospitality and retail industries, like discount retailer Don Quijote, cosmetics and diaper maker Kao and personal care products maker Shiseido, may benefit as this trend continues.

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Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.