JPMorgan analysts stated that despite a recent rally that saw Japanese markets recover the majority of their August losses, they were still overweight on the country’s stocks. Fund flow data also indicated some overseas purchasing.
Nikkei 225 and TOPIX indices in Japan were trading at their highest points since August 1. Earlier in the month, the indexes had fallen to 10-month lows and had entered a bear market.
Now that they were trading over 20% above their August lows, both indices were once again approaching record highs reached earlier in the year.
Although JPM cut its year-end price predictions for both indices by roughly 6% apiece, the bank maintained that it was still overweight Japanese stocks.
Trading data from August 5–9 revealed that while domestic investors and medium–to long-term foreign traders were purchasers, particularly through bargain buying into highly discounted sectors, short-term overseas investors dumped their Japanese positions.
The weakening of the yen played a major role in the good results reported by Japanese corporations in the June quarter, according to JPM.
However, in August, as the carry trade unravelled, the yen dramatically strengthened. Increased pressure on corporate earnings could come from the yen’s continued strength as the Bank of Japan hikes interest rates.
