Markets

Japanese Stocks Likely Vulnerable to U.S. Rates, Japan Earnings Next Week

Yomiuri Shimbun file photo
Tokyo Stock Exchange

Jiji Press

15:55 JST, January 6, 2024

TOKYO (Jiji Press) — Japanese stocks are expected to struggle for direction next week, influenced by U.S. interest rates and Japanese corporate earnings.

In the first two sessions of 2024, the key Nikkei 225 stock average dropped 86.75 points, or 0.26%, to end at 33,377.42 on Friday. The market was closed for three days through Wednesday for the New Year’s holiday.

On Thursday, the Nikkei sank on waning expectations of early U.S. interest rate cuts, with technology shares, in particular, succumbing to selling pressure. The benchmark index rebounded the following day led by buying in exporters amid the yen’s weakening against the dollar.

Next week, which has only four market days as Monday is a national holiday, the Nikkei is expected to move mainly between 33,000 and 34,000, analysts and brokers said.

Stocks would get off to a weaker start after the long weekend, if U.S. Treasury yields go up in the wake of the release later on Friday of the Labor Department’s employment report for December.

But in the peak quarterly earnings season for Japanese firms, investors may renew their appetite in view of strong numbers.

“Despite differences among companies, overall earnings should be good,” a Japanese securities house official said.

Concerns over U.S. interest rates, however, would be rekindled by the U.S. consumer price index for December, due out Thursday.

Another brokerage firm official ruled out the possibility of hopes for early interest rate cuts by the U.S. Federal Reserve growing again.

Even if U.S. wage and price increases are as tame as expected, “it will take a considerable amount of time for the Fed’s inflation target of 2 % to be achieved,” the official said, predicting a rise in the 10-year Treasury yield.

On the other hand, anticipation of Japanese firms improving their capital efficiency is likely to underpin stocks, market sources said, pointing out that the Tokyo Stock Exchange will on Jan. 15 start releasing a list of firms that have disclosed their efforts to that end.