As we have mentioned in some of our previous notes, the real test for Prime Minister Abe's plan to grow the Japanese economy will depend on whether he can get and keep the economy on a long term growth trend. An expanding economy and steadily higher corporate earnings seem to be the key to long term bull markets. When investors are convinced that the economy is going to expand and earnings are going to rise they are usually optimistic and normally are on the buy side. When the economic outlook seems uncertain or negative and earnings are expected to contract, investors are usually net sellers.

At present investors seem to like Mr. Abe's economic policies and are net buyers, in fact overseas investors have been pouring money into the market for some time. Many analysts have upgraded their earnings estimates for the current fiscal year ending March 2014. The Bank of Japan's newly elected Governor, Mr. Kuroda, is placing stress on quantitative and qualitative easing, and is likely to instruct the Bank to buy more local ETFs, JREITs , and is also considering buying local corporate bonds and CP. The above would of course be good for both the economy and the stock market and should also help to keep interest rates low.

Eoin Treacy's view The actions of the new Japanese government and the central bank have succeeded in grabbing the attention of globally oriented investors. If that is to continue the velocity of reform will need to persist. This point will become progressively more important as the bull market proceeds.

The Topix Banks Index has been outperforming the wider market since June 2011 and the ratio remains in a consistent step sequence uptrend. A sustained move below 0.162 would be required to begin to question medium-term scope for continued outperformance. In absolute terms, the sector extended its advance today.

Year-to-date the Topix Real Estate Index has been the best performer but with a P/E of 47 it is looking expensive at today's levels. Its largest constituent, Mitsubishi Estate, has a forward P/E of 88. The Topix Banks Index which has been the fifth best performer year-to-date has a P/E of 11 and its largest constituent, Mitsubishi UFJ Financial, has a forward P/E of 13.