A fading expectation of rate cuts is a negative factor for the New York market; what about the Tokyo market? [From Tomoaki Sugimura’s newsletter]
From the investment e-magazine “Sugimura Tomo’s Investment Salon” by Sugimura Tomo, provided by GogoJungle, a small excerpt from today’s issue is introduced.
The United States expects a major rate cut to be postponed; Japan faces yen depreciation!
The market is showing a sense of directionlessness. Also, in the past few days the NY market rose while the Tokyo market fell, and the NY market fell while the Tokyo market rose—a curious phenomenon. The background seems to be a retreat in expectations for U.S. rate cuts.
In June’s employment report (non-farm payrolls), expectations were for an increase of 160,000, but actual was 220,000. Looking at this, the domestic economy is not weak at the moment.
Moreover, last week the NY Dow, S&P 500, and NASDAQ Composite all posted record highs. They moved extraordinarily strongly. Because of this, at the FOMC meeting on July 30–31, expectations shifted from “a 0.50 percentage point rate cut is certain” to “it may stop at a 0.25 point cut” or “there may be no rate cut at all.”
The fading expectation of a large rate cut is negative for the NY market, but it provides benefits to the Tokyo market through yen depreciation. However, the yen’s depreciation has not immediately translated into a rebound in export-related stocks. Perhaps the market regards the yen’s depreciation as lacking credibility.
Another reason for the weaker correlation between the NY and Tokyo markets could be GPIF and Bank of Japan ETF purchases. There was also re-investment of dividends (about 7 trillion yen). On the other hand, factors that cap upside include the House of Councillors election on July 21, and trade frictions between Japan and Korea.
Regarding the House of Councillors election, coverage suggests the ruling party has the upper hand, but until results are known, it’s uncertain. Additionally, the emergence of a sudden pension issue and the opposition’s plan to field unified candidates in 32 single-seat constituencies add further unknowns.
The export restrictions on semiconductor materials to Korea are a big topic. Yet, online, voices saying “well done” are abundant. Young people seem to view the Japanese government’s actions as a response to Korea’s handling of Fukushima-related import bans, forced labor, and comfort women issues, perceiving that “patience has been stretched to the breaking point.”
Well, I hope the “conflict” is resolved promptly... In about a month, Micron’s Hiroshima plant (semiconductors) will complete its expansion work. Likely, the timing of the export restrictions was communicated to President Trump in advance and is therefore considered to be “understood.”
『Sugimura Tomo’s Investment Salon』（Tomo Sugimura）Quoted.
From last week’s employment statistics results and the solid performance of U.S. equities, expectations for rate cuts are weakening, but in the Japanese market, in addition to the House of Councillors election and pension issues, there are remaining factors such as Japan-Korea economic frictions that restrain upside. As Sugimura-sensei points out, in a market with little direction, it might be prudent to stay cautious until the aforementioned factors change. What is certain is to pay attention after the soon-to-come House of Councillors election. (Editorial staff)
