Japan’s blue chip Nikkei stock market ended down -9.4% at 26,094 for the year. On the last day of the trading year the Nikkei was flat and -0.5% for the week. The broader Topix Index closed down 5.1% to 1,892 in 2022. These were the indices first annual losses since 2018. Japanese stocks have outperformed this year on the BOJ’s divergence from the tightening course of other major central banks. The Topix loss of 5.1% compares with losses of about 20% each in the S&P 500 Index and MSCI World Index. It has been a tumultuous year for Japanese investments with the Yen at one stage weakening to 32-year lows which the Bank of Japan was forced to defend.
The USDJPY long was one of the most overcrowded trades with heavy BOJ intervention which took a while to work, it’s a matter of timing and teamwork. Japan spent a record $42.8 billion on currency intervention in October to prop up the yen, the finance ministry said.
The next big move by the BoJ came with the yield curve shift. We saw a big move in export stocks when the BOJ shocked many participants with adjusting the central bank’s yield curve control program with saw yields rise sharply and a similar move in the yen. Dollar Yen went from 137.20 to 133.20 on the announcement. 10-year JGB yields surged to 0.455%, the highest since 2015 leading to a limit down halt on the Osaka Exchange.
Top Performing Japanese Stocks for 2022
- Mitsubishi Heavy Industries Ltd. +102%
- IHI Corp. +71%
Defense stocks were the big winners in 2022 for Japan with the cheaper yen and Russia’s invasion of Ukraine and China’s constant overtures towards Taiwan boosted the sector. Mitsubishi Heavy Industries Ltd. shares rose 102% this year, the best performer in the Nikkei 225, with IHI Corp. (+71%) also among the top blue-chips. Goldman Sachs analyst share-price targets imply a further gain of 27% for IHI over the next 12 months.
- Isetan Mitsukoshi Holdings +70%
- Takashimaya Co. +70%
Airlines stocks such as Japan Airlines rose with Japan gradually lowering Covid-related restrictions. Department-store chains Isetan Mitsukoshi Holdings Ltd. and Takashimaya Co. shares rose more than 70% each.
- Osaka Titanium Technologies Co. +409%
- Toho Titanium Co. +202%
Energy and other commodities-related stocks outperformed in 2022 on hopes for economic reopening worldwide. Titanium stocks Osaka Titanium Technologies and Toho Titanium had their best year since 2005 with shortages of the metal.
- Mitsubishi UFJ Financial Group +44%
Mitsubishi UFJ Financial Group rose climbed 44% this year, leading advances in Japan’s three megabanks. Financial stocks surged in response on prospects for better earnings from higher interest rates after the BOJ shocked many participants with adjusting the central bank’s yield curve control program. The nation’s largest lender Mitsubishi UFJ Financial Group Inc. jumped 6%, the most since March 2020. Japanese stocks have outperformed this year on the BOJ’s divergence from the tightening course of other major central banks.
On the day of the BOJ announcement Japanese stocks tumbled as the yen surged, Technology and auto stocks tumbled as a stronger yen is seen as negative for exporter earnings. The very factor that had added resilience to the Japanese market for most of the year, at least globally.
The yen at one point had its worst year on record falling to 144.99 per dollar, a 24 year low, fueled by the selloff in Treasuries widening the yield gap between the US and Japan.
Worst Performing Japanese Stocks for 2022
- Z Holdings Corp. -50%
- Rakuten Group Inc. -50%
Z Holdings Corp. and Rakuten Group Inc where the Nikkei 225’s worst performers, as emergence from the pandemic and recession fears hit e-commerce stocks. We saw the same pattern in the US with similar stocks losing up to 95% of their value.
- Tokyo Electron Ltd. -40%
- Nidec Corp.,-40%
We saw chip makers fall around the world from Samsung in South Korea, Taiwan Semiconductor in Taiwan to Intel and AMD in the US. Japan was no different even with the support of the weaker yen. Chip-equipment maker Tokyo Electron Ltd. and Nidec Corp., the world’s biggest manufacturer of electric motors, both lost over more than 40%.
- Recruit Holdings Co. -39%
Recruit Holdings and other human-resources businesses where hit by the weak outlook not just for Japan but globally. Global companies had already been cutting staff since Covid and then central banks started raising rates aggressively. Recruit is owner of popular US job site Indeed.com.
Gains in defense and reopening stocks countered losses in technology shares to help the Japanese equity market stave off the steep declines seen in global peers this year.
In 2023 we will watch how this pattern and the yen perform for future trends in Japanese stocks.
We are also watching the Yuan and Yen rates relative to Japan exporters. Yen weakness places Chinese manufactures at a competitive disadvantage, which has emboldened Beijing to play the currency devaluation card in an attempt to mitigate mounting economic woes and dumping of Chinese assets. Higher-yielding Chinese debt securities are losing their relative appeal (in a rising yield world), and now even the perceived stability of the Chinese currency is in question.
How Global Indices Fared in 2022
Asia Pacific Region Equity Markets in 2022
- Japan’s Nikkei: (-0.5% for the week/-9.4% for the year)
- Hong Kong’s Hang Seng: (+1.0% for the week/-15.5% for the year)
- China’s Shanghai Composite: (+1.4% for the week/-15.1% for the year)
- India’s Sensex: (+1.7% for the week/+4.4% for the year)
- South Korea’s Kospi: (-3.3% for the week/-24.9% for the year)
- Australia’s ASX/200: (-0.9% for the week/-5.4% for the year)
Source: TC, Bloomberg
From The TradersCommunity News Desk