Corporate earnings recovery, as well as anticipation of further policy impetus from a reopening provided support to Japanese market sentiment. However, as the Dollar continued to gain in strength relative to the Japanese Yen, the Yen fell 4.09% against the Dollar, hitting foreign domiciled returns. Over the month of August, the Nikkei 225 gained 1.04% (falling 2.89% in US$ terms), while the TOPIX edged 1.18% higher (2.76% lower in US$ terms).

Although daily infection figures continue to rise to new highs, there are no plans to re-impose the previous restrictions. The Japanese government announced further relaxations to inbound tourism, increasing the daily arrival quota, lifting certain restrictions on entry, and issuing visas for unguided tourists, it was also reported that Japan will eventually scrap the daily cap on inbound travellers. The anticipated boost to the economy via tourism will remain a catalyst for the economic recovery in the country.

The economic data was mixed, PMIs surpassed expectations, but household spending missed. The more closely watched inflation data edged higher, however it was mainly driven by the weakness in the Yen. Bank of Japan Governor Haruhiko Kuroda admitted that continued easing is the only option given the weak economy. Given the divergence in the monetary policy, the trend in the currency is not expected to reverse anytime soon. With potential catalysts on one hand, and risks arising from inflation and currency depreciation on the other, we shall remain neutral on Japanese equities in the meantime.