JP225/USD

The Japan 225, or Nikkei, remained largely range bound through the third quarter. The index dipped slightly on the last trading day of the quarter but recovered the next day. Japan 225 maintained a gradual uptrend during the fourth quarter and hit a 30-year high of 27,568.15 on December 28. The gains were supported by the US government approving a stimulus package and the rollout of covid-19 vaccines by various countries around the world.

There could be downside to Japanese stocks if investors are spooked by the continued rise in coronavirus cases around the world, although Japan has successfully curtailed the spread of infection. The Japanese government has also imposed restrictions on travel to and from regions where new virus strains have been found. The pending US Senate vote on increasing the covid-19 relief cheques from the currently approved $600 to $2,000 per individual may also lead to some volatility.

Consumer prices fell 0.9% in November, following a 0.4% decline in the earlier month, with the covid-19 pandemic continuing to impact consumption levels. The drop was the highest since August 2010. Utilities recorded the biggest decline during the month. For December, the annual inflation rate is projected to decline to 0.3%.

The consumer confidence index improved slightly to 33.7 in November, which marked the strongest reading since February. However, the figure remained below the pre-pandemic levels. Consumer confidence is expected to rise to 35 in December.

The Japanese economy expanded by an annualized rate of 22.9% in the third quarter, rebounding strongly from a 29.2% contraction in the previous quarter. The latest reading was the strongest growth on record.

Japan reported a trade surplus of ¥366.8 billion in November, recovering from a ¥88.4 billion deficit in the year-ago period. Exports declined for the 24th consecutive month, falling 4.2%, while imports also fell by 11.1%, registering a decline for the 19th straight month. The country’s surplus is expected to shrink to ¥200 billion in December.

Japan reported the lowest unemployment rate since July in November, with the jobless rate falling to 2.9%, from October's level of 3.1%. The number of unemployed persons declined by 160,000 to 1.98 million in November. However, the unemployment rate is expected to increase again to 3.2% in December.

The au Jibun Bank Japan manufacturing PMI improved to 49.7 in December, from 49.0 in November as the economy started to emerge from the coronavirus-led crisis. The country’s factory activity is expected to return to the expansion zone, with the reading projected to rise to 50.9 in January.

While Yoshihide Suga has taken over as Japan’s new PM, elections scheduled during the latter half of the year could shake things up. Political events preceding the Liberal Democratic Party Presidential race in September and the possibility of snap elections to determine the fate of the House of Representatives could impact the Nikkei 225.