Strategic Investment Recommendations for the Japanese Stock Market
Amid Political Uncertainty,
Focus on Financials, Consumer Goods, and Trading Sectors
Gradual Policy Rate Hikes and Pro-Business Policies Expected to Support Market Stability
On September 5, Korea Investment & Securities stated that despite ongoing political uncertainty in the Japanese stock market, pro-business and domestic demand stimulus policies are expected to continue, which should limit the decline in investor sentiment. The firm recommended a strategic investment approach focused on the financial, consumer goods, and trading sectors.
Choi Bowon, a researcher at Korea Investment & Securities, explained, "Although Japanese Prime Minister Shigeru Ishiba has expressed his intention to maintain his administration, political uncertainty is expected to persist until a decision is made on September 8 regarding whether an early Liberal Democratic Party leadership election will be held." He added, "Even if the election proceeds, there is unlikely to be a significant change in the policy direction of the Liberal Democratic Party or the central bank. Policies supporting businesses and boosting domestic demand are likely to become more concrete."
With the probability of a U.S. Federal Open Market Committee (FOMC) rate cut in September increasing, the Bank of Japan's (BOJ) pace of policy rate hikes is expected to be more gradual than previously anticipated. These interest rate changes, along with easing concerns over tariff negotiations, are analyzed to have a positive impact on the Japanese stock market. The potential slowdown in the depreciation of the yen against the dollar is also expected to contribute to market stability.
Choi noted, "Ultimately, as the United States is expected to cut its benchmark interest rate and Japan is expected to raise its policy rate, companies that benefit from a declining yen-dollar exchange rate should be watched closely. Export-oriented stocks, which have relatively underperformed, are expected to show solid results." Among exporters, he judged that a focus on equipment and infrastructure companies, which are less burdened by a U.S. rate cut, is more effective than last year's popular choices such as automobile and semiconductor companies.
He also advised, "As the BOJ does not assess Japan's economic situation negatively, its policy stance is likely to be maintained. Accordingly, continued attention should be paid to sectors that benefit from central bank policies, such as financials."
It is also positive that earnings expectations for major Japanese companies have been significantly raised. Choi analyzed, "During the July-August earnings season, more than half of Nikkei-listed companies reported sales and operating profits that exceeded expectations. The sustained high yen-dollar exchange rate and the early resolution of tariff issues are raising expectations for future earnings."
This month’s recommended stocks are centered on infrastructure and industrial companies with low valuation burdens and strong mid- to long-term growth potential, with Hitachi highlighted as a representative example. Hitachi was evaluated as a noteworthy company amid global supply chain restructuring and declining U.S. Treasury yields. Given the gradual pace of yen-dollar depreciation, Daikin Industries and Fanuc were also recommended.
Additionally, in the phase of easing tariff uncertainties and the concretion of pro-business policies, Toho, Omron, Zozo, and Mercari were suggested. Among financial stocks, Fukuoka Financial Group was highlighted as a company with less valuation burden compared to larger peers. Itochu Corporation and Asahi Group Holdings, which are highly responsive to yen-dollar exchange rate fluctuations, were also presented as stocks worth attention.
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