Report

Japanese Equity Market

Overview in September 2021

In September, the Nikkei Stock Average gained 4.85% on the stock market, mainly due to rising expectations for economic policies by the incoming administration.

The stock market opened higher on speculation that Prime Minister Suga would dissolve the House of Representatives, and subsequently reached its highest level in 31 years since August 1990 in mid-September, due to the receding risk of a major defeat for the ruling Liberal Democratic Party in the House of Representatives elections as a result of the Prime Minister's announcement that he would step down and rising expectations for economic measures by the incoming administration.

In late September, the stock market fell sharply due to caution over the management crisis of a major Chinese real estate company, then rebounded sharply as the FOMC (Federal Open Market Committee) passed without disturbance, and then fell sharply toward the end of the month due to a large drop in US stocks.

By industry, mining, air transport, and oil & coal rose, while steel, shipping, and machinery fell.

Outlook for October 2021

Although the slowdown of the Chinese economy and the U.S. debt ceiling issue are risk factors, the market is expected to remain firm due to the normalization of economic activities following the lifting of the state of emergency declaration and expectations for economic measures in preparation for the House of Representatives election.

Against the backdrop of a decrease in the number of people infected with the new coronavirus, the government has decided to lift the state of emergency declaration altogether and is planning to gradually ease restrictions on the number of people at events and the provision of alcoholic beverages at restaurants. With regard to vaccination, the number of people who have completed the second round of vaccination is about 60% on a national basis, and about 90% for those aged 65 and over, and since all those who wish to be vaccinated are scheduled to finish by November, it is conceivable that the penetration rate for the entire population may increase to nearly 80%. Although the economic judgment in the monthly economic report for September was revised downward for the first time in four months due to weak consumer services caused by the spread of the new coronavirus, the economy is expected to recover mainly domestically due to the normalization of economic activities and the expected economic stimulus measures by the new prime minister.

In addition to the domestic demand-related sectors that were affected by the declaration of the state of emergency, the external demand-related sectors are also expected to maintain their profit growth due to the recent weakening of the yen, although the rate of profit growth will slow down due to supply-side risks such as the slowdown of the Chinese economy and semiconductor shortages. For the second half of the fiscal year and the next fiscal year, which will be the focus, the degree of recovery in domestic demand-related sectors such as consumer services, which will benefit from the normalization of economic activity, will be important.

As for the schedule of the House of Representatives election, the House of Representatives will be dissolved on October 14, the end of the temporary Diet session, the announcement will be made on October 19, and the vote will be held on October 31. Looking at the relationship between the House of Representatives election and stock prices in the past, there have been many cases where stock prices have risen from the time the voting date was decided until the voting date. This time, the lower house election is scheduled to be held after the election of the LDP president, and it is undeniable that stock prices have risen ahead of the election. However, the full lifting of the state of emergency and expectations for the new prime minister's economic measures have made the scenario of an overwhelming victory for the LDP more realistic, which is considered to be a positive factor.