Japanese Equities, FOREX, Rates - November 2023

Equity Markets Strong earnings and a weakening dollar rounded out a strong month for Japanese equities with the Nikkei 225 returning (+8.52%) and the broader Topix (+5.38%). This brings the total return in local currency terms for the Nikkei 225 a notch closer to 30% for 2023 and November recording the best month for Japanese equities since 2020, as well as a 33 year high.

Foreign investors were reported to be active as major buyers of Japanese equities on the back of the strong earnings domestically, equities markets being generally strong globally and local stock buybacks. The investment in Nikkei 225 derivatives and cash and futures continues to dominate trading. Japanese investors were noted to have turned sellers of foreign equities, preferring their home market.

Earnings from Japanese corporate reflected margin expansion at consumer goods producers and retailers, indicating that higher prices had been successfully passed on to the consumer. Japan’s export businesses did well with the yen remaining weak painting a generally positive outlook for Japanese stocks with a continued focus on large caps.

Japanese Yen and Rates The trend in the weakening yen against the US dollar appeared to have been broken around Thanksgiving. November is typically a complex month for forex derivatives and the closing out of positions along with the buying of yen tipped the balance exciting technical traders of USDJPY. With the Fed expected to halt further rate rises, and the perception that the Bank of Japan slowing its tightening it monetary policy, long term rates declined.

Economy Although GDP in the July-September quarter showed a drop of -2.1%, the economy is likely to remain relatively steady although consumption outside of the inbound demand may slow until it is clear what wage growth may look like in 2024. 2024 could be a surprisingly good year for GDP growth.

Finishing the Year In December, I am expecting equities to rise through to the year and, with the Nikkei 225 testing its highs of the year. Economists anticipate tax revenues will remain well ahead of forecasts, fiscal policies will be forged to support consumption despite inflation, and foreign money flows will continue to be inbound although this will slow during the holiday season. As for inbound tourism, there seems to be few signs on the street of it abating into the year end, but is something to be conscious of in 2024, the growth may start to slow as the yen strengthens.

Best,

Neil

Photo: BIC Camera in Narita Airport, one of the few places globally you can buy a electric toilet seat to take home from your holiday.