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Japan Times
6 days ago
- Business
- Japan Times
A year after Japan's stock meltdown, markets show resilience and promise
A year after an epic rebound in the yen upended currency trading and sent shares tumbling from Tokyo to New York, Japan's stock market has found firmer footing. It's taken two major routs and a significant unwinding of the carry-trade strategy, used by global investors to borrow heavily in the relatively low-yielding yen to buy other currencies offering higher returns. But twelve months on from Aug. 5, 2024, when Japan's stock benchmarks plummeted 12% and the market lost over $670 billion in value following an unexpected rate hike by the Bank of Japan, the broader Topix index is once again hovering near record highs. And while this summer's share climb bears some technical similarities to last July's ill-fated rise, a combination of clearer BOJ messaging, steady corporate reforms and a better-than-feared U.S. tariff deal has market participants betting against a repeat of the 2024 crash. "It looks like a lot more stable of an environment for the market to go higher,' said analyst Pelham Smithers, who runs an eponymous Japan equity research firm in the U.K. "I think there's room for further rate hikes, which it hasn't felt like before.' The yen is still keeping investors on their toes — the currency gained 2% against the dollar on Friday following disappointing U.S. employment data. The Topix and Nikkei 225 lost over 1% Monday after those statistics stoked recession fears. The yen was trading at around ¥146.75 to the dollar in Tokyo on Tuesday. But the yen's choppiness over the past four weeks is tame compared to its 10% surge over the same period in 2024. And stocks' Monday decline was mild in contrast to their August 2024 collapse, which was also accelerated by weak U.S. jobs data. The relative calm is evidence that investors are finally settling into the new reality of higher Japanese interest rates, said Anna Wu, a cross-asset strategist at investment management firm VanEck in Sydney. "The market has come to a realization that yes, the BOJ will be hiking, but the differentials between the yen and trading pairs, as well as Japan interest rates versus the Fed's rates, are still meaningfully high,' Wu said. That makes another sharp carry-trade unwind unlikely, she added. The newfound acceptance is largely thanks to an improvement in communication by the BOJ, Wu said. Its 15 basis point hike last July caught markets off-guard, sending the yen soaring and global investors rushing to offload carry trade positions. The central bank has since updated its messaging style, ensuring at least one of its board members delivers a scheduled speech and holds a news conference ahead of each policy meeting. For instance, 10 days ahead of its most recent hike in January, BOJ Deputy Gov. Ryozo Himino gave an unusually explicit hint of a raise, with Gov. Kazuo Ueda later backing up the message. The result was telling. Although the quarter percentage point hike to 0.5% was the bank's largest in 18 years, markets were well prepared, and stocks gained in the following week, helped by a rally in banking shares. "The BOJ's decision to raise rates again in January, despite last summer's turmoil, made it clear that the rate hike path will continue,' said Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management. "It's become easier to envision future rate hike scenarios,' he said. Plus, having bounced back from last summer's meltdown and a tariff-fueled rout in April, Japan's equities now look more resilient against potential shocks, analyst Smithers said. "We got out a bit of hot money with the two flash crashes,' he said. "The people in the market right now are the ones who believe in Japan.' A large chunk of those "believers' are foreign investors, drawn to Japan's shares by a record level of corporate share buybacks and hopes that governance reforms will unlock long-term value for shareholders. "Governance reforms and shareholder returns, far from peaking, are scaling new heights,' said Sunny Romo, an investment director of Japanese equities at M&G Investments. That signals room for Japan's stocks to climb higher, especially as global investors look to diversify outside the U.S., she added. Domestic market watchers see potential for more upside, too. Expectations that Japan's ruling parties may give in to opposition calls for consumption tax cuts after a recent election setback are fueling hopes of a boost for retail and other domestic-oriented sectors. "The market is in a different place now than it was a year ago,' said Kazuhiro Sasaki, head of research at Phillip Securities Japan. "Investors have things to look forward to, especially in domestic demand-driven stocks, if the government pursues fiscal expansion.' Optimism is shared by strategists at Goldman Sachs Japan and Bank of America Securities who have hiked their forecasts for the Topix and Nikkei in recent weeks, citing hopes that U.S. tariffs won't derail Japan's economy as much as feared due to a truce limiting levies to 15%. However, the trajectory of Japanese equities still hinges on the yen's stability, and in a world of tariff-driven market swings that's no small caveat. Lingering trade worries and uncertainty around Prime Minister Shigeru Ishiba's fate could still boost safe-haven demand for the yen, stoking volatility, said Klaus Wobbe, CEO of Intalcon Asset Management. "I think the yen could strengthen again to below ¥140, especially if the Fed cuts in the fourth quarter and the BOJ tightens,' said Wobbe. "That would be an indicator that the true unwind is underway. ¥140 is the last line of defense.'
Yahoo
6 days ago
- Business
- Yahoo
Traders Burned by August Crash Keep Betting on Japan Stocks
(Bloomberg) -- A year after an epic rebound in the yen upended currency trading and sent shares tumbling from Tokyo to New York, Japan's stock market has found firmer footing. PATH Train Service Resumes After Fire at Jersey City Station Mayor Asked to Explain $1.4 Billion of Wasted Johannesburg Funds Chicago Curbs Hiring, Travel to Tackle $1 Billion Budget Hole Seeking Relief From Heat and Smog, Cities Follow the Wind It's taken two major routs and a significant unwinding of the carry trade strategy, used by global investors to borrow heavily in the relatively low-yielding yen to buy other currencies offering higher returns. But twelve months on from Aug. 5, 2024, when Japan's stock benchmarks plummeted 12% and the market lost over $670 billion in value following an unexpected rate hike by the Bank of Japan, the broader Topix Index is once again hovering near record highs. Read: Japan's Topix Sets Record High as Trump Deals Ease Tariff Fears And while this summer's share climb bears some technical similarities to last July's ill-fated rise, a combination of clearer BOJ messaging, steady corporate reforms and a better-than-feared US tariff deal has market participants betting against a repeat of the 2024 crash. 'It looks like a lot more stable of an environment for the market to go higher,' said analyst Pelham Smithers, who runs an eponymous Japan equity research firm in the UK. 'I think there's room for further rate hikes, which it hasn't felt like before.' The yen is still keeping investors on their toes — the currency gained 2% against the dollar on Friday following disappointing US employment data. But the yen's choppiness over the past four weeks is tame compared to its 10% surge over the same period in 2024. And stocks' Monday decline was mild in contrast to their August 2024 collapse, which was also accelerated by weak US jobs data. The yen was trading at around 147.2 to the dollar at 3:40 p.m. in Tokyo on Tuesday. The Nikkei and Topix rebounded to close around 0.7% up. The relative calm is evidence that investors are finally settling into the new reality of higher Japanese interest rates, said Anna Wu, a cross-asset strategist at investment management firm VanEck in Sydney. 'The market has come to a realization that yes, the BOJ will be hiking, but the differentials between the yen and trading pairs, as well as Japan interest rates versus the Fed's rates, are still meaningfully high,' Wu said. That makes another sharp carry trade unwind unlikely, she added. The newfound acceptance is largely thanks to an improvement in communication by the BOJ, Wu said. Its 15 basis point hike last July caught markets off-guard, sending the yen soaring and global investors rushing to offload carry trade positions. The central bank has since updated its messaging style, ensuring at least one of its board members delivers a scheduled speech and holds a press conference ahead of each policy meeting. For instance, 10 days ahead of its most recent hike in January, BOJ Deputy Governor Ryozo Himino gave an unusually explicit hint of a raise, with Governor Kazuo Ueda later backing up the message. The result was telling. Although the quarter percentage point hike to 0.5% was the bank's largest in 18 years, markets were well prepared, and stocks gained in the following week, helped by a rally in banking shares. 'The BOJ's decision to raise rates again in January, despite last summer's turmoil, made it clear that the rate hike path will continue,' said Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management. 'It's become easier to envision future rate hike scenarios,' he said. Read: BOJ's Ueda Tempers Near-Term Hike Expectations After Rate Hold Plus, having bounced back from last summer's meltdown and a tariff-fueled rout in April, Japan's equities now look more resilient against potential shocks, analyst Smithers said. 'We got out a bit of hot money with the two flash crashes,' he said. 'The people in the market right now are the ones who believe in Japan.' A large chunk of those 'believers' are foreign investors, drawn to Japan's shares by a record level of corporate share buybacks and hopes that governance reforms will unlock long-term value for shareholders. 'Governance reforms and shareholder returns, far from peaking, are scaling new heights,' said Sunny Romo, an investment director of Japanese equities at M&G Investments. That signals room for Japan's stocks to climb higher, especially as global investors look to diversify outside the US, she added. Domestic market watchers see potential for more upside, too. Expectations that Japan's ruling parties may give in to opposition calls for consumption tax cuts after a recent election setback are fueling hopes of a boost for retail and other domestic-oriented sectors. Read: Japan's Ishiba Stays Defiant Amid Stepped Up Calls to Resign 'The market is in a different place now than it was a year ago,' said Kazuhiro Sasaki, head of research at Phillip Securities Japan Ltd. 'Investors have things to look forward to, especially in domestic demand-driven stocks, if the government pursues fiscal expansion.' Optimism is shared by strategists at Goldman Sachs Japan Co. and Bank of America Securities Co. who have hiked their forecasts for the Topix and Nikkei in recent weeks, citing hopes that US tariffs won't derail Japan's economy as much as feared due to a truce limiting levies to 15%. However, the trajectory of Japanese equities still hinges on the yen's stability, and in a world of tariff-driven market swings, that's no small caveat. Lingering trade worries and uncertainty around Prime Minister Shigeru Ishiba's fate could still boost safe-haven demand for the yen, stoking volatility, said Klaus Wobbe, CEO of Intalcon Asset Management. 'I think the yen could strengthen again to below 140, especially if the Fed cuts in the fourth quarter and the BOJ tightens,' said Wobbe. 'That would be an indicator that the true unwind is underway. 140 is the last line of defense.' --With assistance from Toru Fujioka and Masahiro Hidaka. (Updates with Tuesday's yen, stock moves) AI Flight Pricing Can Push Travelers to the Limit of Their Ability to Pay Russia's Secret War and the Plot to Kill a German CEO Government Steps Up Campaign Against Business School Diversity What Happens to AI Startups When Their Founders Jump Ship for Big Tech How Podcast-Obsessed Tech Investors Made a New Media Industry ©2025 Bloomberg L.P. 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Time of India
15-05-2025
- Automotive
- Time of India
Nissan is rolling out big cuts; turning around sales will prove harder
Nissan's new chief executive Ivan Espinosa faces an uphill task turning around the troubled Japanese automaker with no guarantee it can reverse sliding top-line sales, analysts said, even as he moves to slash costs. With a lack of fresh models, new tariffs in its biggest market, and sharp competition from local and Chinese rivals, Nissan will be hard-pressed to shore up sales, which have plunged 42% since the 2017 business year. Espinosa unveiled plans on Tuesday to cut 11,000 more jobs and shut seven plants and flagged that sales volume was expected to drop 3% in the current fiscal year, as performance in its key markets continues to come under pressure. It expected sales in China to plunge 18%, while sales in North America and Japan are projected to stay nearly flat. "They don't have a hybrid lineup. Their BEVs are not particularly successful," said Julie Boote, an analyst at research firm Pelham Smithers Associates, referring to battery-powered electric vehicles and Nissan's offerings in the US "They will have to work on new model launches, but that takes time, and there's no guarantee that they will be more successful than before." Espinosa has promised to dramatically shorten vehicle development times and centre its strategy in the US, its most important market, around crossovers and sport utility vehicles. "We understand that a sustainable recovery cannot rely solely on cost reductions. It must also be supported by strong product offerings," he said. As part of the strategy, Nissan will start offering a plug-in hybrid version of the Rogue SUV, its top-selling US vehicle, in North America this fiscal year by jointly developing it with its partner Mitsubishi Motors. Another hybrid version of the vehicle will be launched in the next fiscal year and will be equipped with Nissan's e-Power hybrid technology. Boote said she was not convinced of the strategy's success, cautioning plug-in hybrids do not generate the same level of demand as pure hybrid models. "They will need to introduce attractive products to achieve this goal," said Masahiro Akita, a senior analyst at Bernstein, referring to expanding its top line growth. Tariff and margin challenges New US tariffs on imported cars and car parts complicate Nissan's plan to keep its sales decline at just 3% to 3.25 million vehicles in the current business year and its need to turn around shrinking margins. Not only do the tariffs mean it may have to hike selling prices in the US, but they also raise input costs for its manufacturing plants there. Sales in the US rebounded to about 938,000 vehicles in the last business year, but the gain was largely driven by lower-priced, smaller vehicles such as the Mexico-imported Sentra and Versa. Nissan's operating profit margin for the North America region worsened to negative 0.5% in the business year just ended from 4.6% in the previous period, even as it sold more cars there. The company, which imports less than 45% of its total US sales from Mexico and Japan, expects US President Donald Trump's tariffs could cost it 450 billion yen ($3.1 billion) in the current business year. Margins are also under pressure as Nissan boosts incentives to reduce inventories of ageing vehicle lineups. At the same time it faces growing competition from not just nimble Chinese EV makers such as BYD but also from domestic rivals, analysts said. Its smaller rival Suzuki, for example, outsold Nissan in the first three months of 2025, on course to replace it as Japan's third-biggest automaker behind Toyota and Honda this year. Getting Smaller Reflecting its worsening fortunes, Nissan is the worst performing stock among Japanese major automakers, down 29% so far this year lagging a 5.5% drop in the broader market. There is no buy or strong buy recommendation on Nissan shares among 18 analysts covering the automaker, and half of them recommend sell or strong sell, according to LSEG data. Three months ago, there was one buy recommendation. Espinosa took over the helm of Nissan last month from his predecessor Makoto Uchida following failed merger talks with bigger rival Honda earlier this year that would have created the world's fourth-largest automaker. Analysts have said Nissan, among its many missteps, is paying the price for years under former Chairman Carlos Ghosn, where it focused too heavily on sales volume and used heavy discounts to keep cars moving off lots. That has tarnished its brand and left the firm with an ageing line-up that it is now scrambling to update. Boote worried that Nissan may not be able to hold out if Trump's tariffs on autos and auto parts remain in place over multiple years. "The question is: Will they have time to turn around the business while having to deal with higher input costs?" she said.
Japan Times
02-04-2025
- Business
- Japan Times
Stakes are high for Switch 2 after Nintendo's stock valuation surges
Nintendo shares have soared to a series of records in anticipation of its Switch 2 console, making the upcoming reveal of the gadget's details a potential watershed. The stakes are high for the unveiling of the console on Wednesday, with the stock trading near its priciest level in seven years. The pressure to impress with the device and related games has ramped even higher on concerns that Donald Trump's tariffs may drive up the Switch 2's price. Shares have climbed about 25% in the past 12 months, far outperforming Japan's Topix benchmark and briefly pushing the firm's market capitalization above $100 billion for the first time. Short interest has spiked in recent weeks, as some investors bet on a decline. Unless details of the Switch 2 exceed market expectations, "I think the run that Nintendo has had over the past year probably sums up the upside,' said U.K.-based Japan equity analyst Pelham Smithers. The stock may look less attractive after the console's release because it has "done so well on the hype,' he added. The stock did lose some steam in mid-January after the company released a Switch 2 teaser video with fewer details than expected. Wednesday's announcement should reveal more, and compatibility with third-party games is seen as a key point to watch, along with the new console's price. "If it's going to come at $449 or $499, as many are predicting, that's very high — and that's before tariff talk,' Smithers said. The ability to play titles not available on the original Switch, such as those released for Sony Group's latest PlayStation, would help boost demand, he said. Investors are also hoping for an announcement of new in-house games for the Switch 2, which is seen going on sale as early as June. "The important thing will be having a really attractive software lineup,' such as new Mario Kart and Pokemon titles, to sustain demand for the console beyond its initial launch, said Doug Creutz, an analyst at TD Cowen. Creutz, who has a buy rating on the stock, sees Nintendo's rally as far from over, projecting upside of more than 20% over the next year. "Their intellectual property has been having a lot of success, and I think that's value that still has not been fully recognized by the market,' he said. Anticipation of further earnings upside from nongaming IP, like "The Super Mario Bros. Movie," has helped boost the stock's price. It's been trading around 30 times estimated forward earnings for the past two months, a level last seen in early 2018, and pricier than console peers Sony and Microsoft. The lofty valuation has led to increased bets on a drop. Short interest in the stock has risen to above 1.8% of the free float, near the highest level in about a year, S&P Global data show. Sell-side analysts remain mostly positive, however, with 21 buy recommendations versus eight holds and three sells. Bulls point to the potential for the Switch 2 to revive sales and profit growth, which have slumped as its predecessor has aged. The stock's huge run-up may leave it vulnerable to disappointment upon Wednesday's unveiling. By way of comparison, shares dropped around 6% in the week after details of the original Switch were revealed in January 2017. "It shouldn't be a surprise if there's a round of profit-taking' after the Switch 2 reveal, said Robin Zhu, an analyst at Sanford C Bernstein. Losses will "probably be bigger than the hardware unveiling last time,' due to the stock's historically high price, he said.
