CC Japan Income & Growth Trust (CCJI) announced its annual report for the year ended 31 October 2023. The NAV total return of the company  increased by 18.9% in sterling terms. The share price total return, rose 20.9%. This represents significant outperformance against the TOPIX Total return Index, which rose 12.0% in sterling terms during the year. Commenting on the returns, the company noted that manger Richard Aston and his team have handled the market volatility with great discipline by retaining focus within the scope of the investment mandate which
seeks total return. During the year the company noted that the team identified and captured opportunities arising from the post Covid reopening of the Japanese domestic economy with adroit portfolio positioning notably by being overweight in financials as the sector recovered. The team also had a notable success with Socionext participating in a Japanese IPO for the first time.

Regarding the outlook, chairman Harry Wells commented:

Despite decent returns over the last decade, the Japanese equity market remains undervalued. The earnings yield dwarfs the negative return from cash. The Government and The Tokyo Stock Exchange are committed to cleaning up capital inefficiencies and boosting returns on equity. Companies are being forced to change their behavior. TOPIX listed companies are still sitting on considerable amounts of cash estimated at the yen equivalent of over US $1 trillion. This should steadily be reduced through increasing shareholder distributions, share buy backs, management buyouts and private equity deals. The recent rationalisation of cross holdings and subsidiaries by the influential Toyota group and the gathering pace of MBOs executed at significant premiums to existing share prices are examples. The drive for efficiency is complemented by PM Kishida‘s efforts to mobilise a shift in the mountain of household savings and domestic institutional funds into income generating assets including equities. The recent doubling of NISA allowances, Japans equivalent of the UK ISA, is one such initiative to encourage savings into the stock market. It remains to be seen whether the inevitable but gradual steps towards normalisation of monetary policy as a corollary of inflation serve to stimulate equity investment flows. For now, BOJ monetary policy remains uniquely accommodating compared to other major Central Banks.

Deflation in Japan has at last given way to some inflation. Wage growth should help the consumer. Tourism is picking up. Reshoring manufacturing capacity has seen a recovery in capital expenditure. The weakness of the yen is an export opportunity. Forecasts for corporate earnings growth are healthy with an estimated growth of at least 7.5% for both 2024 and 2025. These virtuous developments will benefit further from any recovery of the world economy and improvement in global political tensions. The risks of widening conflict in the Middle East quite apart from tensions over Taiwan and Korea are apparent. The recent earthquake also reminds us that Japan is susceptible to natural disasters. That aside, most commentators believe that the USA is heading for a soft landing rather than a deep recession. World equity markets tend to take a lead from the policy actions of the US Federal Reserve, but Japanese equities now stand out on their own merits. Our mandate is well placed to continue to provide solid total returns and the Board has every confidence in Richard Aston and the team at Chikara to keep producing them.

CCJI : CC Japan Income & Growth Trust rises above in strong year