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The Nikkei Stock Average recorded its first decline of the month last week, closing at 35,751.07 yen, down by 212.2 yen (0.59%). The movement was significantly impacted by the performance of semiconductor stocks, as the Nasdaq and Philadelphia Semiconductor Index (SOX) experienced substantial gains, attracting investors’ focus towards semiconductor-related securities. Companies such as Tokyo Electron (8035) and Advantest (6857) witnessed increased buying, propelling the Nikkei Average to the 36,000 yen range and even reaching 36,500 yen on the 22nd. However, the positive momentum shifted towards the end of the week when the earnings report of U.S. semiconductor giant Intel disappointed the market, resulting in a broad sell-off of semiconductor stocks. As a consequence, the Nikkei Average fell below the 36,000 yen level, leaving a long upper shadow on the weekly chart.
Impact of Foreign and Individual Investors on the Market
Analyzing the trading dynamics for the third week of January (15-19), foreign investors continued their buying trend in the cash market, accumulating a net purchase of 384.1 billion yen. On the other hand, individual investors persistently engaged in selling, with a net outflow of 185.5 billion yen. The prevailing trend of foreign investors buying while individual investors selling, observed in the second week of January, continued, although the magnitude of foreign net purchases significantly decreased. The market is closely watching how the reduced buying by foreign investors may influence overall market sentiment.
Bank of Japan’s Monetary Policy and Market Fluctuations
The Bank of Japan’s monetary policy decision had a significant impact on the market. The announcement of maintaining the current monetary policy stance led to a shift in market sentiment. The “Outlook Report on Economic and Price Developments” mentioned, “The certainty of achieving the price target continues to gradually increase.” Investors interpreted this as a signal that the normalization of monetary policy might be imminent, prompting profit-taking actions in the short term. On the 24th, as the yield on 10-year government bonds rose to the 0.7% range, real estate stocks were sold, while banking stocks were bought, reflecting trade movements linked to interest rates. Consequently, the Nikkei Average fell below the 36,000 yen level, leaving a long upper shadow on the weekly chart.
In the press conference, BOJ Governor Kuroda reiterated multiple times that the certainty of achieving the price target continues to gradually increase. He also mentioned, “Towards the March meeting, we will have data on wages, the economy, and prices.” On the other hand, he stated, “We intend to maintain the framework of controlling long-term interest rates even after lifting negative interest rates,” suggesting the possibility of preserving the basic framework of the accommodative monetary policy. While the market was leaning towards the consensus of lifting negative interest rates in April, expectations for a March lift increased, leading to a market scenario of “rising government bond yields and selling stocks.” However, the exchange rate remained stable, with the dollar trading at 146-148 yen post-BOJ meeting. A significant yen appreciation or depreciation did not materialize, as the removal of negative interest rates had already been factored in to some extent. With the Federal Open Market Committee (FOMC) meeting approaching next week, the market is expected to remain cautious, and significant currency movements are anticipated post the FOMC meeting, considering the importance of the Japan-U.S. interest rate differential.
Trends in Chinese-related Stocks and Key Points of Interest
In the realm of Chinese-related stocks, the Shanghai Composite Index and Hang Seng Index showed signs of recovery following the stimulus measures implemented by Chinese authorities. However, certain stocks faced challenging conditions, particularly Nidec (6594), which revised down its net profit for the current fiscal year citing poor performance in the Chinese electric vehicle components market. Performances of Chinese-related stocks such as Fanuc (6954) and Murata Manufacturing (6981) have been deemed weak compared to the Nikkei Average and TOPIX. As earnings announcements become more prevalent next week, the market is keenly observing whether there will be a significant shift in the dynamics of Chinese-related stocks triggered by these earnings reports. The market is sensitive not only to China’s economic stimulus measures but also to the performance and outlook of individual companies.
Conclusion
Given the uncertainties in the market, particularly regarding monetary policy developments and the behavior of foreign investors, investors are urged to approach trading cautiously. While careful investment is essential, staying attuned to market fluctuations is equally crucial.
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