Ryoji Musha, the representative of Musha Research Co., Ltd., rejects the scenario of a US Stock Market crash. He notes that after the Jackson Hole conference in August 2023, relief has returned to the market, unlike the previous year when the stock markets of major countries plunged due to hawkish comments from the Chairman of the Federal Reserve. Concerns about inflation and a rise in interest rates have eased, and the possibility of a credit crunch or economic standstill causing a drop in stock prices has been ruled out. Musha believes that the recent rise in Japanese stock prices is either a short-term cycle or the start of a long-term trend, and the strength of the market trend is reflected in the TOPIX reaching a post-bubble high before the Nikkei Stock Average.
Musha also discusses the White Paper on the Economy and Fiscal Policy, which declares the lifting of deflation in Japan after more than 20 years. He attributes Japan’s revival to the geopolitical situation, particularly the US’s focus on deterring China. He highlights the high-tech decoupling from China and the depreciation of the yen as factors contributing to Japan’s economic revival. The depreciation of the yen has made Japan more competitive, attracting global demand and increasing capital investments. Inbound tourism has also increased, driving domestic demand. Musha predicts that the Japanese economy in 2023 will be the brightest year since the burst of the economic bubble.
Furthermore, Musha notes that the supply and demand of Japanese stocks will improve significantly. Japanese households are shifting towards stock investments, companies are returning profits to shareholders, and share buybacks are increasing. Foreign investors, who previously heavily shorted Japanese stocks, are now under pressure to increase their holdings. As a result, Musha anticipates periodic panic buying of Japanese stocks in the future.
Ryoji Musha (Representative of Musha Research Co., Ltd.)
US Stock Market Crash Scenario Rejected
After the high-profile Jackson Hole conference in August 2023, relief is returning to the market. In 2022, I remember that the stock markets of the major countries plunged about 10% due to the hawkish comments of the Chairman of the United States Federal Reserve (Fed) Jerome Powell at the same conference, and I was worried, but this year there will be a big event. There was no turmoil.
A common concern among pessimists was inflation and a rise in interest rates, and fears that a recession in the United States was inevitable The scenario of a fall in stock prices originating in the United States seems to have been almost cancelled.
A gradual slowdown in the economy is evident, inflation has gradually receded, and we are in the final stages of deciding whether one more rate hike is necessary. Now that the possibility of a credit crunch due to a chain of bank failures and a collapse in asset prices has been ruled out, the only risk we can think of is a sudden economic standstill for some reason, but this will trigger expectations for an immediate sudden. a drop in interest rates and push stock prices up. The pessimists will soon raise the white flag.
There are two ways to view the bear market for Japanese stocks. What separates the two is whether the sudden rise in stock prices of almost 30% over the three months from March to June is seen as the product of a short-term cycle, or is seen as the start of a long-term trend. The June-August break is considered to be nothing more than a temporary adjustment to the weather. The strength of the market trend is reflected in the fact that the TOPIX reached a post-bubble high before the Nikkei Stock Average.
● Deflation Victory Declaration in the White Paper on the Economy and Fiscal Policy
The times are changing tremendously. This year’s White Paper on the Economy and Fiscal Policy, released at the end of August, has the subtitle “Prices and Wages Begin to Move,” and it could be said to be a victory declaration that the deflation that has plagued Japan has been lifted. because. more than 20 years have passed.
Economic white papers sometimes go down in history for their period-making analysis, but the most famous is the 1956 white paper. The subtitle, “It is no longer after the war,” is a bold statement that Japan has entered a high growth path, and that the Nikkei stock average rose 77 times from the 500 yen level at that time to 38,900 yen 35 years later. . This resurgence in post-war Japan occurred because the hegemonic power, the United States, greatly favored Japan as a bridgehead against the communist bloc during the Cold War.
Japan’s revival supported by geopolitics
In the United States, the left and the right, the Republican Party and the Democratic Party, have established a national consensus that China is the biggest threat, and deterrence against China is the most important national agenda. And that changed the fate of Japan.
The countermeasures against China initiated by the Trump administration first occurred with a joint Japan-US statement at the Suga-Biden talks in April 2021, and the flow from decoupling to China and Japan-US semiconductor cooperation has continued today created. . A month after the Suga Biden talks, the Semiconductor Congressional Federation of the Liberal Democratic Party was established under the presidency of three Triple A’s (Amari, Abe, Aso), and it was decided to promote investment on a scale of 10 trillion yen.
In October 2021, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest semiconductor manufacturer,
Japan has a 56% share of the global market for semiconductor materials and a 32% share for semiconductor manufacturing equipment, making it the most important base for breaking away from dependence on China. Especially in post-processing (assembly), which will be the key to technological innovation in the future, Japan’s technology collection is at the world level, and it seems that all semiconductor manufacturers have started to visit Japan. Japan’s once completely defeated high-tech industrial agglomeration has begun to move strongly towards revival.
Quantitative economy begins with yen depreciation taking place
Along with this high-tech decoupling from China, the Yen is plunging. In 2021, the dollar-yen exchange rate, which was in the 100-yen range to the dollar, has recently plunged to 146 yen, a drop of more than 30%.
The Japanese yen has long been unusually strong as a means of squeezing Japan by the United States. From the 1990s to around 2010, the Japanese yen remained above purchasing power parity by more than 30. As a result, Japan became the most expensive country in the world, and its industrial competitiveness was significantly weakened. Producers closed domestic factories, cut jobs and moved overseas. Banks turned Japan’s abundant savings into foreign loans. The appreciation of the Yen forced people, money, factories and business opportunities to leave Japan, leaving the Japanese economy in recession. Japan’s high-tech industry was completely defeated by South Korea, Taiwan, and China.
As a result of this depreciation in the Yen, Japan suddenly became one of the cheapest countries in the world. The purchasing power parity of the yen according to the OECD (Organisation for Economic Co-operation and Development) in 2022 is 95 yen, while the current real exchange rate is 146 yen, so the Yen is almost 40% cheaper than it really is. Global demand, which has shifted away from Japan due to the appreciation of the yen, is rapidly concentrating in Japan due to the depreciation of the yen. It is clear from various circumstantial evidence that the US acceptance of a weaker yen is central to this trend.
The Japanese economy in 2023 will be the brightest year since the bubble burst. Due to the J-curve effect, the negative period in the price at the beginning of yen depreciation has ended, and we have entered a period where the increasing volume multiplier effect appears. The yen’s depreciation strengthens Japan’s price competitiveness and raises the factory operating rate. In addition, domestic produce will be substituted for imported goods which have become expensive. According to various capital investment surveys such as the Bank of Japan Tankan and the Nihon Keizai Shimbun, capital investment will continue to grow in 2022 and in 2023 at an all-time high. The depreciation of the yen has also increased inbound tourism, and foreign tourists are driving domestic demand in Japan’s many rural areas. Global demand has been concentrated through various channels towards cheap Japan, and the domestic economy is beginning to revive.
Japan’s deflation began when companies, which had lost competitiveness due to an appreciation of the Yen, began to curb wages. Today, however, the labor market is tight, and companies must hire people willing to pay high wages and create competitive teams in order to build a domestic production system. According to the federation, the average wage increase rate in 2023 will be 3.67%, the highest in 30 years. What guarantees that it creates value in a company. According to corporate statistics, ordinary profit increased by 11% year on year in the April-June period, and the ratio of ordinary profit to sales reached a record high of 8.9%.
● From now on, panic buying of Japanese stocks will occur from time to time.
In addition to this large increase in fundamentals, the supply and demand of stocks will improve significantly. Japanese households, which favored cash and unusually high deposits, began to make a major shift to stock investment following the reform of the NISA (tax exemption system for small investments). Under the guidance of the Financial Services Agency and the Tokyo Stock Exchange, companies have strengthened the return of profits to shareholders, and share buybacks are increasing rapidly. Foreign investors, who have been heavily shorted in Japanese stocks, are under pressure to significantly increase their holdings of Japanese stocks.
Over the past 30 years, the proportion of Japanese stocks in global stocks (MSCI AC Index) has fallen by almost a tenth, from just over 40% to 5% today. For 30 years, Japanese stock investment has been dedicated to selling and being under pressure. A 30-year pendulum inversion is almost certain to force higher pressure in Japanese equities, but most investors are not prepared for it. It should be borne in mind that we have entered a period where the panic buying of Japanese stocks seen between March and June this year is often cyclical.
It has become clear that the Bank of Japan’s YCC (yield curve control) and other emergency measures can be normalized without adversely affecting the market. It can be said that the fall season has begun, reminding all investors of the risks that Japanese stocks cannot bear.
(September 4, 2023 Musha Research reprint “Strategy Bulletin No. 339”)
stock search news
#Ryoji #Musha #Japanese #stock #investment #autumn #team #begun #Search #news #market #position #stock
