26 August 2018

Japan's stock market has quietened down over the late summer weeks, having passed the earnings season which had been dominating stock moves. However, calmer markets overseas and the yen's recent bounce above its key 110 support against the US dollar triggered some buying. The Nikkei 225 led the market higher, supported by ETF purchases as the index cleared above its key moving averages and looks to want to test its tough Y23K hurdle. The broader market measure, the Topix on the other hand, staged a more muted bounce and remains at the bottom of its trading range of the past year. 

Meanwhile, concerns about the growing rift over trade between US and China linger. With last week's low-level trade talks having gone nowhere as was generally expected, markets will be bracing for another round of tariffs, especially for Japan if the US threat of imposing $200bn of tariffs on imported autos becomes reality. For now the US claims it is still studying whether overseas-made cars are a threat to US security, however odd that this might sound. 

Indeed, with weekend talk of the US and Mexico nearing a pact to revive NAFTA while Canada is next in line for bilateral renegotiations, it does seem that US policy makers could be changing tack with their neighbours while looking to continue to raise trade barriers with others. Come what may, news of trade talks with Mexico going well must be a huge relief to the auto sector in general and in Japan, especially Mazda (7261) which has substantial production based there. 

Back in Japan, Shinzo Abe has officially announced his wish to run for the third term for the LDP presidency and remaining PM. With the only challenge coming from the former defence minister, Shigeru Ishiba, Abe looks very likely to win. With the scandal having blown over, it seems Japanese political leaders like those in the US also seem to have also become more resilient to scandals. With the 37 year-old and charismatic Shinjiro Koizumi, the son of the ex-PM, deciding not to challenge Abe, we think the path looks clear for the current PM to lead Japan through to the Olympics.