The Japanese equity market performed in line with global markets, concerns over global monetary policy tightening and higher geopolitical tensions all contributed to the weaker market sentiment. Over the month of January, the Nikkei 225 lost 6.22% (6.18% in US$ terms), while the TOPIX also ended 4.84% lower (4.80% in US$ terms).
COVID showed no signs of easing in the country, as daily infected figures continue to climb, despite a flurry of countermeasures dedicated to limit the spread. As of late, the government have finally started to shift its position on the pandemic restrictions, announcing reopening its borders, which could hopefully relief some of the pressure on badly hit sectors of travel, hospitality, and services in general. This could mark the start of the transition from a low tolerance policy to the coexistence one, which should also help lift the corporate earnings forecast in the market.
That said, economy itself remains relatively weak, leading indicators are still mixed at best, confidence indices are less positive. However, the key item of inflation in Japan is still far lower than the global average. This could give the market an edge as the central bank is expected to keep the loose monetary policy unchanged, which prevents a significant valuation compression. These should keep the market afloat despite the weaker fundamentals. We stay neutral on the market for the whole year.