The market in Japan continued to lurch sharply lower today as trading resumed after yesterday’s National Foundation Day holiday.
The broad-based TOPIX fell by 5.4% in yen terms, capping its steepest weekly decline since 2008. Financial turmoil and uncertainty in credit markets exacerbated concerns about the threat of a global recession.
Yen v dollar
A global flight to safety increased demand for the yen, which briefly touched the upper Y110/$ level. Japan’s currency was poised for its most significant fortnightly advance against the US dollar since the Asian financial crisis in 1998.
Authorities in Japan expressed concerns over the “rough” moves, fuelling speculation that they may intervene. At the market close, the yen was trading at Y112/$, down sharply from Y114/$ on Wednesday. Against this backdrop, Japanese stocks traded broadly lower, with non-bank financials, shipping companies and exporters leading the decline.
Many Japanese companies will face higher hurdle rates in the first half of 2016 and the weaker outlook for Asia in general combined with a stronger yen means that it is critical to find reasonably valued companies that can deliver solid growth next year (fiscal 2016).
Overall, the type of short-term correction that we are experiencing provides the opportunity to increase holdings in companies at more attractive prices where I have a high level of conviction in their mid-term growth prospects. Although there has not been any significant change in my portfolios, I have been adding stable domestic growth companies in areas such as telecommunications, services and retailing.
Conversely, I have been selectively reducing holdings in technology-related companies that are experiencing a deceleration in business momentum and are losing earnings support from the yen.