Image Credits: CNBC TV18
In the third week of September, Japanese stocks are expected to test their upper limits as the yen’s strength stabilizes following key monetary policy decisions from Japan and the United States. The market is poised to shift from uncertainty to a more secure buying environment as these policies become clear.
During the second week, the yen appreciated amid expectations of a domestic interest rate hike, which led to a decline in Japanese stocks. The Tokyo Stock Price Index (TOPIX) fell by 1% over the week. Market participants are expected to remain cautious in the first half of the third week as they monitor currency fluctuations.
The Federal Reserve Board (FRB) will convene for a two-day Federal Open Market Committee (FOMC) meeting starting on September 17th. The subsequent release of the economic forecast on the 18th, along with Chairman Powell’s statement and press conference, will be pivotal. A clear policy outlook from the Fed could ease the current trend of a strong yen and stock market sell-offs.
The market anticipates a cut in the U.S. policy interest rate, with speculation focusing on whether the reduction will be 0.25 percentage points or 0.5 percentage points. The Bank of Japan’s meeting on September 19th and 20th is also under scrutiny. While a majority of economists surveyed by Bloomberg expect further rate hikes in December, the Bank of Japan is anticipated to maintain its current rate, limiting immediate market impact.
Tomoo Kinoshita of Invesco Asset Management predicts that market movements will remain restrained ahead of the FOMC meeting. He expects that while interest rate cuts may spread a sense of security in the stock market, this will likely lead to yen appreciation and limited gains for Japanese stocks compared to their U.S. counterparts. Kinoshita suggests that significant market-moving material from the Bank of Japan meeting is unlikely.
Daiwa Securities’ Chief Strategist Hirotaka Tsuboi anticipates a relief rally following the FOMC meeting as market uncertainty diminishes. The announcement of rate cuts and the economic outlook should boost stock market confidence, potentially reducing volatility if the consensus on U.S. monetary policy solidifies.