Outlook for the Japanese Stock Market in 2024
2023-12-19
■The improvement of management efficiency has been confirmed, and attention should be paid to whether PER will increase.
■ Maintain sufficient vigilance against the level of the US dollar/Japanese yen exchange rate.
Although the Nikkei Average has been fluctuating in the range of 26000-29500 yen since the second half of 2020, it has risen to a higher level since May 2023. Although the Bank of Japan has flexible operating policies through measures such as expanding the tolerance of fluctuations in the interest rate of 10-year treasury bonds, it still maintains a loose monetary policy, which is favoured by the relatively good investment environment. In addition, listed companies also play a positive role by improving shareholder returns, economic recovery, entry, and other Japanese-specific favourable factors, so foreign investors have poured in funds. Although this trend ended in August, the outflow of funds did not continue, forming a range centered around 31000-33500 yen.
The expected price-to-earnings ratio (PER) of TOPIX for the next year has remained between 12 and 16 times since 2012. Except for the situation that COVID-19 will soar 18 times during the pandemic period from 2020 to 2021, it fluctuates up and down in the middle of 14 times and fluctuates between 12-14 times and 14-16 times every year. To list more than 14 times, there are expectations for Abenomics in 2013, the improvement of shareholders' return on capital (ROE) due to the implementation of corporate governance laws in 2015, the stock market expectations due to the inauguration of President Trump in 2016-2017, fiscal expenditure and loose monetary policy due to the COVID-19 pandemic in 2020-2021, etc. The current expected PER is 13.5 times (as of the 15th), located near the upper limit of the range of 12-14 times. We will test whether the improvement in operational efficiency of Japanese companies is confirmed to reach the range of 14-16 times and consolidate it. The expected earnings per share (EPS) growth rate of TOPIX for the next year is 9.0%, as sustained expectations of inflation keep profits expanding. It is expected that the Nikkei average index will rise to 38000 yen in 2024, with a year-end forecast of 35000 yen.
In this situation, it is necessary to maintain sufficient vigilance against the level of the US dollar/Japanese yen exchange rate. According to the short-term survey conducted by the Bank of Japan in December, large manufacturing companies expect the USD/JPY exchange rate for 2023 to be 138 JPY 30, an increase from the September survey (133 JPY 91). In addition, through the mid-term financial reports for the July-September period, major export companies have raised their expected USD/JPY exchange rate for the full year of 2023 to over 140 yen. As the US dollar/yen exchange rate approaches 140 yen, there is an increasing sense of vigilance toward a downward performance expectation. Therefore, it is also necessary to closely monitor the trend of the US dollar/yen exchange rate in 2024.
■ Maintain sufficient vigilance against the level of the US dollar/Japanese yen exchange rate.
Although the Nikkei Average has been fluctuating in the range of 26000-29500 yen since the second half of 2020, it has risen to a higher level since May 2023. Although the Bank of Japan has flexible operating policies through measures such as expanding the tolerance of fluctuations in the interest rate of 10-year treasury bonds, it still maintains a loose monetary policy, which is favoured by the relatively good investment environment. In addition, listed companies also play a positive role by improving shareholder returns, economic recovery, entry, and other Japanese-specific favourable factors, so foreign investors have poured in funds. Although this trend ended in August, the outflow of funds did not continue, forming a range centered around 31000-33500 yen.
The expected price-to-earnings ratio (PER) of TOPIX for the next year has remained between 12 and 16 times since 2012. Except for the situation that COVID-19 will soar 18 times during the pandemic period from 2020 to 2021, it fluctuates up and down in the middle of 14 times and fluctuates between 12-14 times and 14-16 times every year. To list more than 14 times, there are expectations for Abenomics in 2013, the improvement of shareholders' return on capital (ROE) due to the implementation of corporate governance laws in 2015, the stock market expectations due to the inauguration of President Trump in 2016-2017, fiscal expenditure and loose monetary policy due to the COVID-19 pandemic in 2020-2021, etc. The current expected PER is 13.5 times (as of the 15th), located near the upper limit of the range of 12-14 times. We will test whether the improvement in operational efficiency of Japanese companies is confirmed to reach the range of 14-16 times and consolidate it. The expected earnings per share (EPS) growth rate of TOPIX for the next year is 9.0%, as sustained expectations of inflation keep profits expanding. It is expected that the Nikkei average index will rise to 38000 yen in 2024, with a year-end forecast of 35000 yen.
In this situation, it is necessary to maintain sufficient vigilance against the level of the US dollar/Japanese yen exchange rate. According to the short-term survey conducted by the Bank of Japan in December, large manufacturing companies expect the USD/JPY exchange rate for 2023 to be 138 JPY 30, an increase from the September survey (133 JPY 91). In addition, through the mid-term financial reports for the July-September period, major export companies have raised their expected USD/JPY exchange rate for the full year of 2023 to over 140 yen. As the US dollar/yen exchange rate approaches 140 yen, there is an increasing sense of vigilance toward a downward performance expectation. Therefore, it is also necessary to closely monitor the trend of the US dollar/yen exchange rate in 2024.