Japan Market Fluctuates on Macro Uncertainty - Global X ETFs Hong Kong

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Japan Market Fluctuates on Macro Uncertainty

By: Jeff Huang

Japan equity market recorded extreme volatility in past few days on BOJ rate hike and global macro uncertainty. On 31 July, BOJ decided to raise policy rate from 0-0.1% to 0.25%, the highest level since 2008.1 In addition, BOJ governor’s hawkish comments point to risk of the next hike to be brought earlier, depending on upcoming data. Hawkish BOJ move and accelerated US fed cut expectation drove Yen surge by over 10% to ¥145/$ from its lowest level in mid-July,2 leading to the unwinding of Carry Trade that resulted in a global risk asset sell-off in early August.

Implications

Japan equity market recorded 20% decline during 1 – 5 August, followed by rebound of over 10% in the next 2 days. After the volatility, Japan Market forward P/E has fallen to 13.0x, a level that is below historical average and where the fundamental looks attractive, though we note that downward earnings revisions from recent JPY appreciation might not have been reflected yet. The sell-off priced in JPY appreciation to ¥140/$, which would erode corporate EPS by 10%4. Near term uncertainty prevails, though a view that unwinding of JPY carry trades is almost over has also emerged. Both non-resident and individual investors have reset their YTD net buying. Potential downside risks come from further JPY appreciation and US economy falling into recession.

While we continue to monitor near term development, we remain constructive on Japan equity market with positive structural changes occurring in Japan. June headline wage growth came in at 4.5% (vs consensus of 2.4%), with real wage turning positive for the first time since April 2022,5 further supporting the reflationary thesis for Japan economy. A meeting of the MOF, FSA, and BOJ following the market sell-off and resulting expectations of changes in BOJ hawkish stance also supported the market in the near term. Continued progress on corporate reform and enterprise share buyback, coupled with increase in Japanese household investment under new NISA scheme, should drive a revitalized Japan equity market despite near term uncertainty.

Global X Japan Global Leaders ETF (3150 HKD) invests in 20 leading Japan export companies. The index delivered continued outperformance compared to broad-based indexes thanks to export strength for Japan on Yen weakness and strong product competitiveness.

 

Authored by:

Jeff Huang

8 Aug 2024

Date : 8 Aug 2024

Category : Research & Insights

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