Last week, the Bank of Japan held its first monetary policy meeting under the leadership of the new governor, Haruhiko Kuroda. Its moves to ease monetary policy were, according to much market commentary, generally bolder than expected.

The BoJ shifted its policy target from the unsecured overnight call rate to the monetary base, which it committed to doubling within the next two years. It will also  significantly increase purchases of long-term Japanese government bonds and extend the maturities of JGBs it can buy. The central bank will also boost purchases of exchange-traded funds and real estate investment trusts.

“The BoJ’s actions are undeniably exciting and will continue to generate much comment as markets watch to see how the repercussions play out,” Alex Treves, head of equities, Japan, at Fidelity Worldwide Investment, said in a note from the firm.

He said questions remained, however, on how far the recently elected Japanese government can succeed in pushing through reforms to accompany monetary easing.

“To what extent will corporates use current tailwinds to regain competitiveness both at home and overseas? Inflation will not obviously mitigate the productivity challenges in the former, nor - in the absence of the right products - the degree to which Korean and other manufacturers have gained share in the latter. And, crucially, to what extent are individual corporate management teams motivated by the profitability of the companies that they run?” Treves said.

“Domestic reflation will be a much more powerful and sustainable story if it is accompanied by reform, and by a broad-based improvement in returns which are shared with equity investors,” Treves added.

His colleague, Jun Tano, portfolio manager at the FF Japan Smaller Companies Fund, said: “Although the BOJ’s move this time was bolder than we expected, the stock market has already discounted this regime change to a large extent. As a result, we have seen strong gains by real estate developers and non-bank financials since the beginning of this year, from which FF Japan Smaller Companies Fund has so far benefited.”

“Going forward, the key check point is whether real demand will follow the monetary growth trend. I am carefully evaluating the potential headroom for each company’s earnings growth and how much of it is reflected in the current valuations,” Tano said.

June-Yon Kim, who manages the Fidelity Japan Fund, FAST Japan Fund, said: “With this backdrop, we are likely to see further weakening in the yen, which will be supportive of continued positive earnings revisions.  Although market sentiment appears frothy and a short term pull back would be unsurprising, the tailwind for the Japanese market has definitely strengthened overnight.”