Despite a decent outlook on the economy thanks to the changes made to border rules, Japanese equity indices still logged in a large correction in September, the Japanese Yen also fell 3.99% further against the dollar. Over the month of September, the Nikkei 225 lost 7.67% (11.50% in US$ terms), while the TOPIX was 6.48% lower (10.36% in US$ terms).

The current accommodative monetary policy weakened the Yen, resulting in soaring imported prices. The latest inflation figure remains elevated at 3.00%, which is the 5^th month in a row above the central bank target. However, we still don’t expect the Bank of Japan to alter its course, as the dovish policy was fully backed by the government. Instead, the Bank had opted to intervene in the FX market, briefly pushing back the strong Dollar, but the Yen resumed the slide later on. We expect the existing trend to continue in the near future.

In response to the difficulties caused by inflation, Prime Minister Fumio Kishida has ordered his cabinet to draw up a fiscal package, including electric bill subsidies to alleviate household inflationary pressures, its effectiveness will be closely watched. Other than domestic consumption, border controls are set to further ease for inbound travellers in early October, which could rejuvenate the hospitality sector in Japan, although the absence of Chinese tourists likely puts a cap to the upside. At the moment, inflation and currency depreciation risks likely cancel out the potential in reopening, we are staying neutral on the Japanese equity market in the short term.