US Vaccination progress, Japan’s fragile Olympics and coming US/Japan summit

US vaccinations continue to surge while Japan struggles ahead of Olympics
Although the most recent resurgence in Covid infections around many parts of the world, including Japan have led to some renewed concerns about extended lockdowns in the very short term, US stocks continued to power to new highs. Investors there have remained encouraged by the country’s ever improving vaccination programs as daily doses in the country look to be rising above 3.5mn levels, leaving it with 3 months to go to cover 75% of the population. 

This is a far cry from the situation in Japan and as we had been largely expecting, the country continues to struggle with the pace of its inoculation program with less than 1% of its nation having been given their first dose of the two jab vaccines that have been made available to it thus far. With some of its key cities seeing another major wave of infections, Japan’s stocks look to have entered a holding pattern for now as doubts have returned regarding an ultimate end to movement restrictions and the country’s preparedness for staging the coming summer Olympics. 

Although in January, we had wrongly predicted that the games will be cancelled by the end of March given Japan’s continued slack response in handling the pandemic, its policy makers have decided to push on regardless of the risks and despite the general unpopularity of holding the event. Moreover, with geopolitics also threatening to engulf the games as calls are growing louder within the US to potentially boycott the coming Winter Olympics in China, any retaliatory move by the Chinese to follow North Korea and pull out from the summer games could leave the already watered-down summer event potentially turning out to be a major failure. 

The US/Japan summit next week likely to set the investment tone in Asia
As we have underlined in the past few weeks, we believe the coming high-level meetings between Japan and the US, scheduled for 16th of April could prove hugely important for the stock market and in terms of clarifying Japan’s renewed commitment to its post-world war security allegiance. With Japan’s prime minister, Suga-san, clearly under enormous pressure from the conservative elements within his own LDP party as well as Japan’s Western allies to introduce sanctions on China for alleged human right abuses, geopolitical risks have risen greatly to 2018 levels when Trump’s trade war first disrupted global commerce.

China is by far Japan’s biggest trading partner and the latter has the most to lose should business relationships sour between the two sides. Although firms with B2B models are unlikely to be greatly affected with semiconductor segment being one major exception should Japan impose export restriction on its materials and equipment suppliers, Japanese consumer brands could be much more vulnerable to potential Chinese boycotts. Thus, to mitigate any possible downside risks in the likely event that Japan folds into line with its allies and introduce its own sanction on China, we have continued to recommend shorting some key Japanese consumer-related names which have overtly high exposure to China.