September 2010
Japanese equities suffered high levels of volatility in August. After enduring a series of peaks and troughs, the Topix index finished the month down 5.2% in yen terms.
In early August, positive corporate earnings gave investors a reason for optimism. Honda’s shares surged after it posted a record quarterly net profit of ¥272.5 billion. Carmakers continued to shine: Toyota raised its full-year profit forecast, crediting better-than-expected Asian sales and a recovery in US demand following a series of product recalls. Real estate companies were also popular, with a report revealing that the office-vacancy rate in Tokyo had declined for the first time in over two years.
Exporters lost favour, however, as the yen continued its relentless progression against the dollar. In the second week of August, the Japanese currency came close to a 15-year high of ¥85 per dollar. Yoshihiko Noda, the minister of finance, was prompted to comment that “excessive foreign exchange comments can adversely affect the economy and monetary conditions”. After confirming that interest rates would remain unchanged at 0.1%, the Bank of Japan said that it was faced with “the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability.”
Exporters clawed back a little ground in mid-August, as speculation increased that the Japanese central bank would intervene in foreign-exchange markets. But optimism was dampened after Japanese GDP data came in much lower than expected. Japan’s economy expanded at an annualised rate of 0.4% in the second-quarter, substantially less than the expected increase of 2.3%.
Other economic news was also pessimistic: a finance ministry report revealed that Japan’s exports rose to 23.5% from the same time a year ago in July. The figure was lower than June’s gain of 27.7% and emphasised fears about the economic slowdown and the strengthening yen.
August ended with the announcement of the Bank of Japan’s plans to expand its monetary easing measures. The current ¥20 trillion lending programme will be extended to ¥30 trillion in an attempt to address concerns about the slowing economy and the currency’s appreciation.
