Japan** will need to overcome five major hurdles in early 2024 to break through the 30-year highs set earlier this year.
That's the analysts' view. They believe that in the coming months, Japanese stock indices will be in trouble due to a stronger yen, weak consumer spending, too many investors chasing a narrow range**, competition from overseas**, and domestic political instability.
Nomura Holdings IncChief strategist Naka Matsuzawa expects Japan to be around 5% over the next six months, while JPMorgan Chase & CoAnalysts at Saxo Markets expect Japan's gains to slow to around 5% to 10% next year, following benchmarks exceeding 20% in 2023.
This rally is likely to be fragile over the next three months. " robeco hong kong ltd.Kelvin Leung, a portfolio manager, said"It may also be reasonable to assume more volatility in the stock price"He said that the needs of some inexperienced investors in Japan could be volatile.
By the middle of next year, most observers will see a different picture, according to a Bloomberg survey, when the Nikkei 225 is expected to hit a 30-year high.
Before that, there are five key negatives that will make investors nervous:
*Dependence on the Japanese yen*
The yen weakness that drove Japan may be coming to an end, which means that the correction period will begin. Since hitting this year's lows in November, the yen has gained about 5% against the dollar, a shift driven by market expectations that the Bank of Japan will end negative interest rates next year and that the Federal Reserve and other central banks may cut rates.
Although Bank of Japan Governor Kazuo Ueda said on Tuesday that it is difficult to make plans to exit negative interest rates at the moment, economists and traders still expect a shift in the coming months.
Nakashi Matsuzawa of Nomura said: "Part of Japan's this year, if not exaggerated, has been boosted by the exchange rate. He said the "overextension" of the dollar against the yen had led to an additional 7- in the Topix index
Tony Roberts, manager of Invesco Pacific Fund (UK), favors companies that are less sensitive to the yen and have a competitive edge, such as Tokyo Electron Ltdand other chip manufacturers. The** outperformed 91% of its peers over the past year. The **current** Toyota Motor CorpThe reason is that the two automakers are very sensitive to the yen. Toyota has been **46% so far this year.
*Narrow***
Another risk is that there are too many investors buying the same large business**. This could mean that these are overpriced, and if market sentiment deteriorates, holding them in large quantities could trigger a sell-off. According to Goldman Sachs Group IncStrategists say half of the positive performance in the Topix Index** from April to September was created by 27 companies.
With China's economy slowing down in the world's second-largest economy, many investors are finding it difficult to invest in China and have turned their money to Japan. But according to JapanmacroNeil Newman, a strategist at com, said many of them set their sights on Sony Group Corp. because of a lack of expertise) and Hitachi Ltdand other large companies.
*Sluggish consumption*
The continued weakness in consumer spending in Japan could also be an obstacle in early 2024***. In the three months to September, Japan's gross domestic product (GDP) contracted by the most since the height of the pandemic as households cut back on spending.
Wage growth has not kept pace with inflation, which could make Japanese consumers more reluctant to shop. Japan has one of the world's most aging populations and a declining population, which is also contributing to weak consumption.
Your consumer base is declining, and you're selling it to a market with a declining population, and that's not a good place to start. "Invesco's Roberts said.
*Global Competition*
With the Bank of Japan expected to start raising borrowing costs, overseas rate cuts could attract investors to pivot to these from Japan**.
Charu Chanana, market strategist at Saxo Markets, said: "Once we see a change in the tone of the Fed, investors will re-pour into the US**.
Chanana expects Japan** to see a downward correction of about 10% by mid-2024, and a market gain of 5% by the end of next year.
Overseas traders sold a net 58 billion yen (4.), in the week ended Dec. 8, according to data from the Tokyo Stock Exchange0.3 billion US dollars) of Japan**and**. Foreign investors sold Japan** for the third week in a row, as the recent sharp appreciation of the yen added pressure to the market.
*Political instability*
After Japanese Prime Minister Fumio Kishida reshuffled his cabinet to curb the funding scandal, opinion polls show his approval ratings continue to decline. This shook the ruling LDP and sparked speculation that the LDP might consider replacing its leader before the end of its term in September next year.
Prosecutors in Tokyo raided the headquarters of two ruling factions of the Liberal Democratic Party, Japan's Kyodo news agency reported on Tuesday. Rie Nishihara, chief Japan strategist at JPMorgan Chase, wrote in a note that the unstable political environment "could put downward pressure on Japan" because "a significant drop in cabinet approval could lead to the search for a new leader." ”