Report type: Weekly Strategy

The highest price since March 12, 1990, occurred 46 business days later from the all-time high

The Nikkei Stock Average exceeded 30,000 yen in closing price on the 17th of last month and rose to 33,767 yen on the 15th of this month, 21 business days later, reaching a level not seen since March 12, 1990. The all-time high of 38,957 yen was recorded on December 29, 1989, 46 business days prior to these events. Connecting these facts, one might feel a sense of anticipation that the all-time high will be surpassed in the not-too-distant future. However, it would be unwise to chase the upside hastily.

On the other hand, it is common for anyone involved in investing to experience regret after selling early and missing out on significant price increases. Understanding the basics of supply and demand indicators such as candlestick charts, trendlines, trading volume, and margin ratios may be necessary when observing changes and trends in buying and selling momentum.

The main factors driving the current buying activity of foreign investors in the Japanese stock market can be summarized as follows: Firstly, the Tokyo Stock Exchange requested corrective measures to address Price-to-Book Ratio (PBR) falling below 1. Secondly, amid the backdrop of US-China trade tensions and supply chain restructuring, there has been an increased flow of direct investment into Japan, particularly in the semiconductor industry. Thirdly, there is growing anticipation towards a positive cycle of wage and price increases. These three points highlight the expectation that Japan may finally break free from the “lost three decades.” This has greatly contributed to the mounting optimism in the market.

In May, the Tokyo Stock Exchange announced the finalized constituent stocks and calculation method for the “JPX Prime 150 Index.” One surprising development was the exclusion of Toyota Motor Corporation (7203), which holds the highest domestic market capitalization, due to not meeting the PBR requirement. This caused astonishment among market participants, leading to the perception that Toyota’s stock price was being unduly undervalued. Subsequently, following the company’s announcement of its intention to introduce electric vehicles (EVs) with long-lasting “all-solid-state batteries,” Toyota’s stock price experienced a sharp increase on the 13th and 14th, surpassing the 1x PBR mark. When a leading Japanese company fails to meet the PBR requirement, it is expected to stimulate movements aiming to reach that 1x benchmark. The expansion of companies exceeding 1x PBR in line with industry leaders is anticipated to uplift the overall stock prices of Japanese equities.

It is conceivable that we will gradually enter a phase where we become more aware of the current reality. On the 15th, Prime Minister Kishida announced his intention not to dissolve the Lower House during the current session of the Diet. This could be seen as a negative factor for foreign investors seeking political stability through a strong foundation of long-term governance. Furthermore, concerning the “positive cycle of wage and price increases,” the April Monthly Labor Survey showed a real wage growth rate, adjusted for expected inflation, that was down 3.0% compared to the same month of the previous year, indicating a lack of benefits from spring wage negotiations. There seems to be a disconnect between the current reality and the expectations of foreign investors. Following the lull in the “Japan buying” trend, we may expect a return to a more susceptible state influenced by the movements in the US stock market.

In the June 19th issue, we will be covering:  Raito Kogyo Co. Ltd. (1926), Sony Group Corporation (6758), Fukuoka Financial Group (8354), Nagoya Railroad Co., Ltd. (9048).

Raito Kogyo Co. Ltd.（1926）　　 　1,921 yen （16/6 Closing Price）　　

・Established in 1948 in Sendai City, the company specializes in civil engineering works with a reputation for technical expertise, including slope and embankment measures, foundation and ground improvement works, repair and reinforcement works, as well as environmental restoration works. They also engage in general civil engineering works, construction, and other related projects.

・For the fiscal year ending in March 2023, announced on May 11th, the company reported a 5.0% increase in net sales to 114.9 billion yen compared to the previous year, while operating profit decreased by 3.4% to 12.7 billion yen. Benefiting from high levels of government construction investment in disaster prevention, infrastructure resilience, and countermeasures against aging infrastructure, the company’s order backlog increased by 7.3% to 117.9 billion yen. However, factors such as increased depreciation expenses, rising equipment and material costs, and higher labor costs impacted the profitability, resulting in a decline in operating profit.

・The company’s fiscal year 2023/2024 plan, ending in March, forecasts a 2.6% increase in net sales to 118.0 billion yen compared to the previous year, with operating profit expected to rise by 3.2% to 13.2 billion yen. The annual dividend is projected to increase by 3 yen to 64 yen. The execution of budgets focusing on disaster prevention, resilience, and infrastructure strengthening is anticipated. On the 9th, the Japan Meteorological Agency announced that the sea surface temperatures off the coast of Peru in South America had risen, indicating the occurrence of the “El Niño phenomenon,” which is considered a cause of global abnormal weather patterns. With the addition of global warming, it is expected that abnormal weather events may occur more frequently.

Sony Group Corporation（6758）　　　 13,765 yen （16/6 Closing Price）  　　　

・Sony Group Corporation was established in 1946 as Tokyo Tsushin Kogyo. It consists of five main business segments: Game & Network Services (G&NS), Music, Pictures, Electronics & Solutions (ET&S), Imaging & Sensing Solutions (I&SS), and Financial Services, along with other businesses.

・For the fiscal year ending in March 2023, announced on April 28th, the company reported a 16.3% increase in net sales to 11.5398 trillion yen compared to the previous year, with operating profit rising by 0.5% to 1.2082 trillion yen. The G&NS segment achieved a 32% increase in revenue, Music saw a 24% increase, Pictures had a 10% increase, ET&S had a 6% increase, I&SS had a 31% increase, while Financial Services experienced a 6% decrease in revenue. The Music, I&SS, and Financial Services segments contributed to the overall operating profit growth.

・The company’s fiscal year 2023/2024 plan, ending in March, forecasts a slight decline in net sales and financial business revenue by 0.3% to 11.5 trillion yen compared to the previous year, with operating profit expected to decrease by 3.2% to 1.17 trillion yen. The plan anticipates growth in sales of the gaming console “PS5.” Sony also announced the consideration of a separate listing for its financial business subsidiary as part of its goal to enhance corporate value. Additionally, Sony received an order for a crucial component, micro organic EL (OLED) displays, which plays a significant role in Apple’s MR (Mixed Reality) headset “VisionPro” unveiled at their developer conference.