The emergency easing by Japan and the United States has had no effect—also considering short selling and futures shorts. Mr. Emori, 3/17

3/17 Excerpt from Tetsu Emori's Real Trading Strategy

Trading Strategy for Japanese Stocks

The Nikkei futures are down. However, not as much as U.S. stocks. It can also be said that they have already fallen quite a lot in advance. Also, the background may be that the yen has not strengthened further. There are no signs of a stock price reversal, but the decline has become too deep, and a self-driven rebound could be due soon. However, in this situation, the courage and funds to buy are extremely limited for investors. Still, in the end, such investors can increase their assets with subsequent stock price recovery. This is a fact clearly shown by past history. I intend not to flee from the current market and to persist with the strategy as before.

The Federal Reserve, on the 15th (morning of the 16th Japan time), decided on the second emergency rate cut of this month. In addition, six central banks including the Bank of Japan announced an expansion of dollar funding supply. The ECB decided to expand quantitative easing on the 12th. The Bank of Japan, in July 2016, decided to expand ETF purchases as part of monetary easing. In September of the same year, it introduced a framework to guide both short- and long-term interest rates. Despite these easing measures by central banks in the U.S., Europe, and Japan, the market has not welcomed them at all. Ultimately, the market seems to judge that there are no means to stop economic deterioration or stock declines other than preventing the spread of the virus. If that is the case, fiscal stimulus will also be ineffective.

Thus, even with swift and bold monetary policies like those during the Lehman Brothers crisis, the market does not rally, showing how deep the current downtrend is.

The government and ruling party seem to be accelerating the process of considering large-scale economic measures, but concrete ideas have not yet emerged. It is truly slow. They appear to be waiting for the FY2020 budget to pass and planning a large supplementary budget, but there is too little awareness of on-the-ground realities and stakeholders. Prime Minister Abe claims “measures not bound by past ideas” and lists polished phrases, but there are no concrete policies. The content of the press conference was not worth watching. In addition to tax relief for businesses, they do not deny lowering the consumption tax rate, but it should be done immediately. The market seems to price in the government's incompetence with its decline.

As for this summer's Tokyo Olympics and Paralympics, which were expected to spur consumption, I personally think we should view them on the premise that they will be canceled. It is unlikely to be held on its original schedule and scale. In other words, businesses that were counting on the Olympics will be forced to undergo major revisions, and an economic slowdown is inevitable.

The government and ruling party are also exploring economic stimulus through tax cuts, and as support for small and medium-sized businesses, measures such as reducing property tax on fixed assets for capital investment are being considered. Furthermore, some younger Liberal Democratic Party lawmakers have proposed temporarily cutting the consumption tax rate to 0%. In the first place, while the U.S. is cutting taxes, implementing an unnecessary consumption tax increase demonstrates the Abe administration’s lack of effectiveness. As a result, with the spread of the novel coronavirus, Japan will be driven into a miserable situation.

If the consumption tax is reduced, the funding for expanding social security costs and free education will be insufficient. Also, changing tax rates in a short period would place a heavy administrative burden on retailers and the food service industry. However, if that is the case, it would be better to postpone it for now and first clearly implement overtly targeted stimulus measures for the economy, which would be better for the people. Acknowledging mistakes and implementing the correct policies as soon as possible is essential; otherwise, things will become truly dire. In any case, with stock prices having fallen this far, self-defense may be the only option.

Some argue that because Japan's coronavirus spread is being contained relatively more than in other countries, easing regulations a bit and widening activity could help the economy recover. However, that will not bring stock prices back. The current problem centers on the spread of infections in Europe and the U.S., which is the root cause of global stock declines. As you know, when overseas markets fall, Japanese stocks decline, and when overseas markets rise, Japanese stocks rise only slightly. Given that Japanese stocks are more volatile than foreign ones, even if Japan improves, you should not expect stock prices to rise significantly.

Matsui Securities’ customer positions reflected in the “Mothers stocks credit unrealized P/L rate” expanded to negative 47.278% for buyers as of March 16. Investors do not seem to have cleared their positions yet. These positions remaining unresolved have been cited as a reason for continued declines, and this has proven correct. Very disappointing. Meanwhile, the unrealized P/L rate for sellers shrank slightly to +13.578%. Still, it is a high-return level. Even though it is unrealized, it is a level rarely seen.

Technically speaking, in such market conditions, if you cannot trade short selling, futures shorts, or put options, your assets will continue to erode. These trades are not easy and require appropriate study and experience. However, when a scenario like this arises, they can have the maximum effect. That is why they are skills worth acquiring. If you hold a short position of even 30% or 50% of your assets, you will be substantially helped in this downturn. You may not have the leeway to start immediately, but once the market settles, you should certainly consider taking up these strategies.

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