Nikkei Set for Decline as Ishiba Shakes Markets

October 4, 2024

Key points

• The Nikkei index slipped 2.8% this week, as shifts in Prime Minister Ishiba’s stance on rate hikes roiled markets.
• Shipping stocks fell sharply after a faster-than-expected resolution to the U.S. port strike, with Kawasaki Kisen dropping 9.2%.

Japanese equities faced downward pressure this week as Prime Minister Shigeru Ishiba’s shifting position on interest rate policy sent ripples through the markets. 

The Nikkei index dropped 2.8% over the week, reflecting its steepest weekly fall in a month. On Friday, the Nikkei did rise by 0.5%, reaching 38,785.15 in morning trade, but the broader market recovery has been slow, especially following the uncertainty sparked by Ishiba’s comments.

Picture: Nikkei 225 consolidates near 38,575, with bullish momentum building, as seen on the VT Markets app.  

Yen’s Rally Fades as Ishiba’s Dovish Shift Unsettles Markets

The yen initially surged when Ishiba, previously a critic of the Bank of Japan’s aggressive monetary easing, gained support from the ruling Liberal Democratic Party. 

However, his recent dovish stance, where he suggested that Japan is not currently in an environment for additional rate hikes, reversed that yen rally. 

This sudden shift unsettled traders, with the Nikkei unable to fully regain its earlier losses.

The Topix index followed a similar trajectory, increasing by 0.6% to 2,699 on Friday but remaining down 1.5% for the week. 

More Clarity to Come

Prime Minister Ishiba is expected to give a policy speech soon, which could provide clarity and possibly ease market concerns, but for now, the uncertainty has left investors cautious.

Several sectors within the Japanese market experienced contrasting fortunes. Fast Retailing, a heavy hitter in the Nikkei, managed to rise 1.5%, contributing to some of the gains seen on Friday. 

Oil and coal stocks benefited from rising energy prices, spurred by growing fears that the ongoing Middle East conflict could escalate further, potentially disrupting global supply chains.

In case you missed, previously: Nikkei Rebounds on Softer Yen after Sharp Sell-off

Shipping Stocks Tumble as Strike Resolution Pressures Freight Rates

However, it was the shipping industry that bore the brunt of the week’s selloff. The sudden resolution of the U.S. dock workers’ strike took many by surprise, with Kawasaki Kisen dropping 9.2%, Nippon Yusen falling 8.8%, and Mitsui O.S.K. Lines shedding 6.7%.

The end of the strike will likely renew downward pressure on freight rates, as the container shipping market, already reeling from oversupply and falling demand, braces for further declines.

Looking ahead, traders will likely monitor Ishiba’s upcoming speech and any subsequent announcements regarding Japan’s monetary policy. 

While Japan’s equities market is vulnerable to both global and domestic factors, we could see a period of consolidation as participants weigh the impact of a stronger yen against the backdrop of a cautious recovery in global stock markets.

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