Japan – The Border Closes once Again | Harris Fraser
Research Insights
30 December, 2021
Japan – The Border Closes once Again

The Japan market fell back in line with global markets over the month of November. As with other global markets, the fear of the new Omicron variant sent the market falling towards the end of the month. The Nikkei 225 was 3.71% lower (2.87% in US$ terms), while the TOPIX was also 3.64% down (2.80% in US$ terms).

The Japanese economy remains mixed, though the latest GDP growth reading for Q3 shrunk more than market expected, but PMIs have improved, which could support the idea of the Japanese economy catching up with other DM economies. Another data point with could support the Japan market is the local inflationary environment, the latest figures continue to show limited inflation in Japan, a stark contrast when compared to the rest of the world. This could allow the Bank of Japan to keep the current accommodative monetary policy in place for a longer period, supporting equity valuations.
However, the Japan market was shaken by the unexpected resurgence of COVID. With border closures ordered, original recovery drivers from travel and services will likely be delayed once again. Even though the LDP led government have rolled out some fiscal stimulus earlier, there are no solid signs of more stimuli down the line. Henceforth, our Japanese market outlook stay conservative, short term headwinds remain before we have a better understanding of the new COVID variant. We will stay neutral on the Japan market as we expect pandemic fears to be offset by the loose monetary policy.
 

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