As the delayed Olympics nears its end, ongoing monetary support offered limited support, the resurgence in COVID arising due to the Delta variant threatens economic recovery and impacted market sentiment. Over the month of July, Nikkei 225 index was down by 5.24% (4.12% in US$ terms), and the TOPIX index fell 2.19% (1.03% in US$ terms).
Economic indicators in Japan continued the previous mixed trend, positive indicators such as the better than expected industrial production figures and modest PMIs were overshadowed by relatively weak household spending. And while the Q2 GDP is set to rebound from the miserable Q1 contraction, the expansion is likely limited, and unlikely to bring the economy back to the pre-pandemic level. The ongoing epidemic also poses as a headwind against the economic recovery, as the virus’ resurgence in the country prompted another round of state of emergency declaration.
The latest emergency declaration once again limited business activities in the country, which is another hit to the business sentiment after the attempt at stimulating the economy via the Olympic Games. With the lack of economic impetus, fundamentals should stay relatively weaker, we would not overweight in the market.