As Japan’s stock market reaches record highs, large investors with long memories are taking a cautious approach. Despite the potential for profits, these investors understand that “big money never buys cheap,” and are wary of sagging momentum and the possibility that the Bank of Japan may soon unwind its massive monetary stimulus.
The BOJ has been providing unprecedented levels of support to markets since 2013 to stimulate economic growth. This policy has led to strong gains in Japanese stocks over recent years, but many analysts now believe it is time for this support to be withdrawn as conditions have improved significantly since its introduction. Investors who remember past cycles fear that without further central bank intervention, there could be a sharp correction when liquidity dries up or if inflationary pressures increase too quickly.
Given these risks, large investors appear content with waiting on the sidelines until they can better gauge how much longer current conditions will last before any changes occur at the BOJ or elsewhere in global markets which could affect prices going forward. While some smaller players may take advantage of short-term opportunities presented by rising stock prices right now, larger funds seem content biding their time until more clarity emerges about future prospects for Japanese equities before committing significant capital into this market again anytime soon.