While global investment sentiment has improved, but Japanese equities had a muted month. Over the month of November, the Yen has gained 7.72% against the Dollar over the month, despite the dovish BOJ, the Nikkei 225 gained 1.38% (8.11% in US$ terms), while the TOPIX was up 2.91% (9.74% in US$ terms).

Overall, the economy is Japan remains mixed, manufacturing PMIs in particular slip further amidst global economic slowdown. Inflation remains one of the biggest points of concern, where the CPI in October rose to 3.7% YoY, which was the highest figure in more than three decades. However, the high figure was largely driven by rises in input prices, the more important wage inflation remains muted. The gap between wages and inflation puts extra pressure on households, lower disposable income results in weaker confidence and expenditure, hitting the economy.

Externally, while it is expected that the continued reopening could help support the services sectors in Japan, the slowdown in the global economy would limit the upside available. Internally, imported inflation eating into household consumption is an unresolved issue, and it remains to be seen to what extend the fiscal package could alleviate the situation. As reopening gains have likely been priced in, the impending recession is unfavourable for the Japanese economy, and monetary policy normalisation might take place in the coming year, all these factors put a further cap on the upside, our outlook for the Japanese equity market remains conservative.