The shift from fixed income into equities by Japanese fund managers has been slower than expected according to John Vail, chief global strategist and chair of the Nikko AM global investment committee.

There has only been a small change in asset allocation by Japanese asset managers since the launch of Abenomics, the stimulus package approved by the government at the start of this year, Vail said in an email to Markets Media.

“The change has been about 25% of our expectations so far, with some shift to Japanese equities away from bonds, but much more to go,” said Vail.

In its latest quarterly asset allocation review, Nikko AM’s global investment committee said equities are still attractive and predicted the MSCI World Total Return Index will rise 4% by next March.

“Nikko AM maintains its two-year overweight stance on global equities, with a preference for European and Japanese equities,” said Vail. “In our view, Japan’s GDP in the second half of 2013 will be above consensus due to low inventories, and we expect this will provide a boost to financial markets.”

The month the Japanese government said consumption tax will increase from 5% to 8% next April. This led the International Monetary Fund to warn that Japanese economic growth will fall from 2%  to 1.2% in 2014.

Vail said the rise in consumption tax may cause a dip in second quarter GDP next year but there will be a quick recovery. “Further evidence of strong economic growth will pave the way for additional reforms to be implemented under Abenomics,” he added.

In fixed income, Nikko AM maintained an underweight stance on G-3 bonds, underweighting Japanese government bonds relative to ex-Japan bonds. The firm expects the yen to continue to weaken as the Bank of Japan maintains its easing stance relative to expected tapering, a decrease in bond purchases, by the US Federal Reserve.

“After the September FOMC meeting, we now expect tapering to start in December or January, QE to end in the third quarter of 2014 and the first rate hike in the second quarter of 2015,” Vail said.

Strategists at KBW said in a report today that the appointment of Janet Yellen as chair of the Federal Reserve next year, subject to Senate confirmation, will have a “tremendous” impact on financial stocks in 2014 and beyond.

“On monetary policy, Yellen appears to be a strong supporter of quantitative easing, believes it is effective in reducing unemployment, and is fearful of reducing monetary stimulus too soon, ” said KBW. “This suggests that the Fed’s bond buying program may last longer than current market participants believe and that short-term interest rates will stay lower longer than currently projected.”

KBW expects Yellen to be a tough regulator. “We believe she will push for reforms in the capital markets, with a focus on derivatives, repos and securities lending,” the report said.