August was a relatively calm month for the Japanese market, equities continued to climb with the help of the dovish central bank. The Nikkei 225 Index gained 6.59% (6.61% in US$ terms) and the TOPIX Index surged 8.16% (8.18% in US$ terms) over the month.

The biggest news in the month is the Japanese PM Shinzo Abe’s announcing to step down from the country’s top position at the end of the month, citing declining health conditions as the primary consideration. Markets were initially concerned about the implied uncertainty due to the vacuum of power left behind in Abe’s wake, but Liberal Democratic Party elders will adopt an emergency procedure, which prevents a full party vote, likely securing a continuity of the Abe policy for the remaining term before the national polls in 2021.

The biggest question the new PM would have to answer is how the country can exit the covid crisis. When Shinzo Abe was still the PM, he was repeatedly criticised for being overly passive in fighting the covid, which ravaged across the Japanese economy and resulted in one of the most serious recessions ever. With the future of the delayed Olympics still uncertain, the upcoming leader would have to come up with a more solid framework to rejuvenate the Japanese economy. With issues and concerns unanswered, we would refrain from investing in the Japanese market.