On October 29, Japan's Nikkei 225 index rose sharply shortly after opening, currently up 0.66%, marking two consecutive days of gains. The positive market sentiment was partly driven by the decline in Japan's unemployment rate in September. The latest data shows that Japan's unemployment rate fell to 2.4% in September, the lowest level since January, and below the market expectation of 2.5%, indicating further tightening of Japan's labor market. This situation suggests that companies will face greater pressure to raise wages, while also sending a signal to the Bank of Japan of a strengthening economy, gradually increasing the possibility of an interest rate hike.
However, the recent results of Japan's general election have added some uncertainty to the market. The ruling coalition of the Liberal Democratic Party and Komeito lost its absolute majority in the House of Representatives election, raising concerns that future policy direction might lean towards low interest rates. Nonetheless, several top Wall Street investment banks have indicated that the change in political landscape may not hinder the Bank of Japan's hawkish stance. Particularly in the context of a tightening global interest rate environment and a weakening yen, the Bank of Japan may still adopt an interest rate hike or tightening policy stance.
In their research report, China International Capital Corporation (CICC) pointed out that due to the potential need for the ruling party to cooperate with other parties in the future, fiscal spending might increase marginally, monetary policy may lean dovish, and pressure on yen depreciation could grow, but these factors will also aid Japanese stock performance. Nozomi Moriya, a Japanese equity strategy analyst at UBS Securities, predicts that the Japanese stock market will continue to be one of the key investment themes in the coming years. She noted that the peak return on equity (ROE) for Japanese stocks is expected to rise from the current 9% to over 12%, offering investors higher return expectations.
Overall, against the backdrop of positive economic signals, policy support, and yen depreciation, the Japanese stock market is experiencing investment opportunities. Japanese stocks may benefit from the tightening labor market and corporate wage pressure, and the potential for profit growth driven by economic recovery and rising inflation, with future performance widely regarded positively by the market.
