Japan shares at crucial point of possible uptrend: Japan Post Bank CIO

TOKYO (Reuters) - Japanese shares are at an important make-or-break point and a decisive rise above current levels will usher in a long-term uptrend in the market, Katsunori Sago, chief investment officer at Japan Post Bank, said on Thursday.

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The bank 7182.T, also known as Yucho, has already set up a team for in-house equity investment but has adopted a wait-and-see stance as the shares it wants to buy are expensive, Sago said at the Reuters Global Investment 2018 Outlook Summit.

He said the Topix stock index .TOPX, a market-weighted index preferred by many investors over the Nikkei average .N225, was testing the strong resistance zone around 1,700-1,800 points, which has capped the market for more than a quarter of a century.

The index rose to as high as 1,844 last week but has slipped back to 1,761.

"The Topix has been confined below this range, since I started my career," said Sago, who worked for Goldman Sachs GS.N for about 23 years before joining Japan Post Bank.

A clear break of that level will usher in a long-term market uptrend and a major shift of Japanese household assets to investment from savings -- something the country has been trying to achieve for decades without any success -- Sago said.

“Alternatively, if the Topix is blocked at these levels, people will think shares are something you need to buy cheap and sell at higher levels rather than to hold for a long time. They will say the economy will be doomed because of aging and so on,” he said.

Japan Post Bank, with total assets of 210 trillion yen ($1.9 trillion), has been among the most active of Japanese investors in recent years following its privatization.

Sago said the bank has been buying U.S. bonds after yields rose in the wake of the U.S. Presidential election last year.

On the other hand, it hedged against rising short-term bond yields in September, just before their yields started rising again, a strategy that worked well, Sago also said.

The bank’s half-year earnings report published on Tuesday showed its foreign currency trading profits rose to 87.7 billion yen in the half year to September from 39 billion yen a year earlier.

Within its portfolio of foreign credit products, such as corporate bonds, Yucho is increasing passive investments while cutting allocation to active managers that failed to generate satisfactory alpha, or excess returns, Sago added.

($1 = 113.00 yen)

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Reporting by Tomo Uetake and Hideyuki Sano; Editing by Jacqueline Wong