Confidence in Prime Minister Shinzo Abe's stimulus policies is faltering after foreign investors sold $24.2 billion of Japanese shares this year, leaving them the cheapest relative to bonds in 18 months.
The earnings yield for members of the Topix index, or estimated net income divided by the average share price, rose to 7.97 percent on April 14 as the benchmark slumped 13 percent this year, data compiled by Bloomberg show. That's a 7.37 percentage point premium over 10-year Japanese government bond yields, the most since October 2012. The equivalent spread in the U.S. was 3.75 percentage points.
Abe has yet to take new pro-growth steps even as the economy faces the sharpest quarterly contraction in three years after a sales-tax increase. Bank of Japan Governor Haruhiko Kuroda refrained from adding to stimulus on April 8, sending the Topix to its biggest weekly slide in 10 months. Japan's sovereign debt returned 1 percent this year, bringing yields to levels some fund managers say are unattractive.
"The BOJ's bond buying has driven yields so low that there is limited scope for further declines even if stocks retreat," said Masaru Hamasaki, a senior strategist at Tokyo-based Sumitomo Mitsui Asset Management Co., which oversees the equivalent of $132 billion. "There are concerns that the sales-tax increase will hurt growth and corporate profits."
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