While the Nikkei Japan Service PMI was 52.8, Manufacturing PMI further worsened and stayed in the contraction range. Japanese corporate confidence remained weak, machine tool orders fell 37.1% YoY in August, and industrial production went negative YoY once again. Overall, the Japan-wide manufacturing sector’s outlook continues to stay negative. Although CPI, household spending and cash earnings figures remained low, retail sales is surprisingly strong as the sole saving grace, which could be further bolstered by the ongoing Rugby World Cup held in the country. That said, the underlying issues with the Japan economy still exist, the existing trend continues and we have yet to see significant recovery in the Japanese economy, thus we retain our neutral rating for the market.

Sources reported that Japanese Prime Minister Shinzo Abe will not hold a meeting with Korean President Moon Jae-in during the ASEAN conference later this month, further plunging the relations into deep freeze. On the other hand, US president Trump claimed that he had reached agreement with Japan on a “mini trade deal” with agricultural products in focus. While the “deal” was not an official document, the gesture does show further improvement in relations between the two countries, with possible further amendments to be made to the “deal”. This does come in timely as Japan faces stronger headwinds in the economy, not only from worsened relations in Korea, the ongoing trade war, but also the increasing value-added tax from 8% to 10% starting in October. It is expected that the economy, especially industrial and retail sectors, will be more impacted in light of the recent events. Thus, investors should reconsider the situation more carefully and could consider reducing exposure to the region.