Industry
Update

The Nikkei stock index soared Wednesday, ending at a nearly 34-year high for a second consecutive day, as the yen’s weakness against the U.S. dollar sparked aggressive buying of exporters.

The 225-issue Nikkei Stock Average finished up 678.54 points, or 2.01 percent, from Tuesday at 34,441.72, marking its highest close since February 1990 when Japan was experiencing an asset price bubble. It was the largest point gain since Nov. 15.

The broader Topix index finished up 31.39 points, or 1.30 percent, at 2,444.48, its highest close since March 1990.

On the top-tier Prime Market, gainers were led by precision instrument, pharmaceutical and electric appliance issues.

The dollar briefly rose above the 145 yen line in Tokyo trading on receding expectations that Federal Reserve rate cuts could come as soon as March, narrowing the interest rate differential between Japan and the United States.

At 5 p.m., the dollar fetched 144.93-95 yen compared with 144.42-52 yen in New York and 144.06-07 yen in Tokyo at 5 p.m. Tuesday.

The euro was quoted at $1.0926-0927 and 158.36-40 yen against $1.0926-0936 and 157.88-98 yen in New York and $1.0956-0957 and 157.84-88 yen in Tokyo late Tuesday afternoon.

The yield on the benchmark 10-year Japanese government bond ended at 0.585 percent, up 0.005 percentage point from Tuesday, as investors sold the debt after a 10-year bond auction by the Finance Ministry met with tepid demand. Bond yields move inversely to prices.

The stock market surged from the start of regular trading as recent movements in the yen have strengthened investor confidence, alleviating concerns from late last year that the Japanese currency might significantly impact exporters’ profits.

A weaker yen boosts profits earned overseas when repatriated and strengthens the price competitiveness of Japan-made products abroad.

Active buying back of autos, electronics and other exporters followed strong gains in the technology sector on Tuesday when the Nikkei gained more than 1 percent.

”With the yen showing a weakening trend now and the sense that the Nikkei was behind (other markets), we’re seeing a response to that today with equities,” said Toshikazu Horiuchi, equity strategist at IwaiCosmo Securities Co.

The Tokyo stock market failed to keep pace with the strong gains in the U.S. market late last year.

In addition to gains from exporters, modest rises in U.S. tech shares overnight supported their Japanese counterparts.

Among exporters, Toyota Motor advanced 51.0 yen, or 1.9 percent, to 2,745.0 yen, and construction machinery manufacturer Komatsu climbed 71 yen, or 1.9 percent, to 3,850 yen.

Tech and precision instrument shares were higher, with Olympus gaining 117.0 yen, or 5.7 percent, to 2,176.0 yen and Tokyo Electron rising 475 yen, or 1.9 percent, to 25,385 yen.

Elsewhere, pharmaceutical firm Eisai finished up 309 yen, or 4.3 percent, at 7,574 yen, following news Tuesday its Alzheimer’s disease treatment was approved in China, with preparations for a launch between July and September now underway.

The Bank of Japan’s latest ”Tankan” survey shows that business sentiment among the country’s major manufacturers has improved for the third-straight quarter.

Large non-manufacturers are even more upbeat, with the sector’s index at its highest level in over 32 years.

The closely watched gauge measuring the mood of large manufacturers stands at plus 12. That’s up 3 points from the previous survey in September.

A positive number indicates that more companies are optimistic about business conditions than those taking a negative view.

A recovery in automobile production was the main driver behind the improvement. Another positive trend was an increase in the number of businesses raising prices to pass on their higher raw-material costs.

Large non-manufacturers continued to edge higher. Their index rose 3 points to 30. That reading is the highest since November 1991 and marks the seventh straight quarter of improvement.

An increase in foreign tourists and a recovery in the accommodation and restaurant sectors were the major factors.

Looking three months ahead, large manufacturers see a downtick of 4 points. Non-manufacturers see a 6-point drop.

The BOJ polled over 9,000 companies from early November to early December.

The prices of 32,395 food products were increased in Japan in 2023, far exceeding the hikes for 25,768 items last year, private research company Teikoku Databank Ltd. announced on Nov. 30.

While the large number of food price rises this year has helped improve manufacturers’ profitability, consumers are showing signs of ”fatigue,” with sales volumes of some food products declining after their prices were increased. Meanwhile, there was some minor good news for consumers as the pace of price hikes has slowed since the summer.

Given these factors, Teikoku Databank expects that the prices of up to around 10,000 food items will be increased in 2024, but that these hikes that have continued for about two years will ”settle down” for the time being.

The average rate of price increases each time in 2023 was 6% to 14%. The trend of passing on skyrocketing raw material costs and higher labor costs due to worker shortages to retail prices continued. By category, the prices of 11,837 processed food products were raised this year. Prices also went up for 8,052 seasoning items, 6,175 alcoholic beverages and other drinks, 2,270 confectionery items, 1,533 dairy products, and 865 raw materials.

Price hikes are scheduled for 1,596 food items from January through April 2024, mainly for raw materials such as olive oil and sesame products, seasonings such as broth products and ketchup, and frozen foods. However, the pace of price increases is slowing significantly, as the figure is down about 80% from the same period in 2023.

Teikoku Databank also pointed out that there are uncertainties from April 2024 onward. The company noted that the expected price increases for supermarket food trays and other items due to the weak yen and high crude oil prices may affect food prices as well. In addition, labor costs are expected to rise further if wages are raised in annual spring labor negotiations.

Japan’s trade deficit in October shrank 70.0 percent from a year earlier to 662.5 billion yen ($4.4 billion) as imports continued to drop sharply and exports grew for the second straight month, government data showed Thursday.

It was the first red ink in two months, as exports increased 1.6 percent from a year earlier to 9.15 trillion yen, a record high for the month, but growth slowed from a 4.3 percent rise in September affected by a deceleration of the Chinese economy, according to the Finance Ministry.
Imports dropped 12.5 percent to 9.81 trillion yen, down for the seventh month, reflecting price falls for coal, liquefied natural gas and crude oil, the ministry said in a preliminary report.

Japan had a trade surplus of 915.16 billion yen with the United States, hitting a record high for the month, as exports expanded 8.4 percent on robust shipments of automobiles. Imports dropped 4.5 percent to 1.01 trillion yen.Meanwhile, Japan logged a 674.3 billion yen trade deficit with its largest trading partner China, remaining in the red for the 31st straight month.

Food exports to China tumbled 55.0 percent amid a blanket import ban on Japanese seafood after Japan started discharging treated radioactive water from the crippled Fukushima nuclear plant into the sea from August.

Japan’s overall exports to China dropped 4.0 percent to 1.65 trillion yen for the 11th consecutive monthly decline, led by sharp falls of electric components and steel, while imports declined 2.9 percent to 2.33 trillion yen.
”Looking ahead, Japan’s trade deficit is on the mend, more than halving from over 1 trillion yen earlier this year” as import costs had been trending downward recently, said Kazuma Kishikawa, an economist at Daiwa Institute of Research.

But the risk of rising import costs remains due to the recent depreciation of the yen, which was 2.6 percent weaker relative to the U.S. dollar compared with a year earlier, as well as surging oil prices last month since the outbreak of the Israel-Hamas war in the Middle East, Kishikawa said.
With the rest of Asia, including China, Japan’s trade deficit decreased by 62.5 percent to 63.53 billion yen, the first red ink in two months, as exports dropped 5.3 percent and imports shed 7.2 percent.

Japan was in the red for the 15th straight month with the European Union, registering a trade deficit of 86.63 billion yen. Imports shrank 5.6 percent and exports grew 8.9 percent.

Major Japanese companies are expected to log a record combined net profit for the fiscal first half, driven by automobile makers on the back of a weak yen, with a post-COVID recovery in activity also providing tailwinds for services and other sectors, according to a tally by a securities house.

The aggregate net profit of 819 firms that released earnings for the six months ended September by Wednesday increased 12.2 percent to 17.87 trillion yen ($118 billion) from the same period last year, according to data from SMBC Nikko Securities Inc.

The projected profit for the current fiscal year through March 2024 is also on course to hit a record high, providing a strong argument for businesses to raise wages during next year’s “shunto” spring negotiations between management and labor unions. But the figure, representing only around 57 percent of the companies that will make up the final tally, may be pulled down as major firms release earnings for the first half.

Combined net profit for manufacturers rose 11.8 percent to 9.13 trillion yen, with transportation equipment makers such as automakers seeing their net profits soar 90.7 percent to 3.56 trillion as the easing of a global chip supply crunch boosted production. Food producers also posted an 81.8 percent increase in net profit to 237.7 billion yen as they passed on higher raw material costs to consumers. Excluding financial firms, net profit among nonmanufacturers grew 11.8 percent to 8.26 trillion yen. The land and air transportation industries saw notable increases thanks to recovering travel demand and inbound tourism amid the easing of the coronavirus pandemic, with the latter surging almost nine-fold. Power and gas companies returned to the black as rate increases helped support their bottom lines. Meanwhile, shipping firms saw their profits sag 81.7 percent amid a slowdown in China’s economy, while wholesalers experienced an 18.6 percent decline. “We can expect further business expansion, particularly among manufacturers, in the coming years, but risks may emerge if the Chinese economy continues to slow or if the yen appreciates significantly,” said Hikaru Yasuda, SMBC Nikko’s chief equity strategist.