Report type: Weekly Strategy
The Japanese Economy Picks up Towards the Olympics
For the Japanese stock market in the week of 20/1, the Nikkei average exceeded 24,000 points on 20/1 as a result of the strong Chinese economy from last weekend’s announcement of China’s GDP for Oct-Dec, industrial production and retail sales for Dec, as well as the steady increase in housing starts for Dec in the U.S. However, discouraged by the trend in the spread of pneumonia from the new strain of coronavirus that occurred in Wuhan prior to the Chinese New Year, from 21/1 onwards, the Nikkei average fell back to around 24,000 points and its high price was prevented from a further increase.
Also, for the unsettled buying balance of arbitrage (unsettled spot purchases with unresolved “forward selling and spot purchase” position) and unsettled selling balance of arbitrage (unsettled long sales with unresolved “forward buying and long sales” position) involving the Nikkei average, the unsettled buying balance of arbitrage exceeded the unsettled selling balance of arbitrage between 20/12 to 30/12, and although from the supply and demand aspect, the buying lead was expected to stabilise, however, with the unsettled selling balance of arbitrage exceeding the unsettling buying balance of arbitrage once again between 10/1 and 17/1, etc., a strong sense of selling pressure was felt with the Nikkei average at the 24,000 point level. On the other hand, on 20/1, the IMF raised the forecast for the real GDP growth rate for the Japanese economy from 0.5% at Oct 2019 to 0.7%, and on 21/1, in the “outlook report” released after the Monetary Policy Meeting, the Bank of Japan raised the median for the real GDP growth rate in the forecast for the Japanese economy in 2020 from 0.6% to 0.8%. Consumption tax countermeasures, strong capital investment and the economic policies adopted by the government in Dec 2019 are predicted to contribute. In particular, with Japan being the only major advanced country / region having an upward revision in the IMF forecast, etc., the future also appears to be bright for the Japanese economy.
Additionally, it was announced that last trains in the Tokyo metropolitan area would be extended up to about 2 hours during the Olympic Games period. Also, in Osaka with its upcoming Osaka / Kansai Expo in 2025, practical tests involving extended operation hours for the Midosuji line are scheduled. In terms of stocks related to the Olympics, there tends to be a perspective involving the reinforcement of security and baggage checks as a precaution against terrorism, cybersecurity as a precaution against cyberterrorism, as well as strengthening quarantine procedures at airports to curb infections at the border, however, it is said that many foreign tourists visiting Japan frown upon the early closing times of recreational facilities, etc. in Japan and the lack of acceptance of cashless payments. It is likely that attention will be on the expansion of the night-time economy and the popularisation of cashless payments in the future as well, since these would directly tie in with a consumption increase by foreign tourists visiting Japan.
In the 27/1 issue, we will be covering Toray Industries (3402), Round One (4680), AOKI Holdings (8214), and Japan Exchange Group (8697).
・Established in 1926 as a manufacturer of basic materials. Engages in businesses such as fibres and functional products, carbon fibre composite materials, environment & engineering and life sciences, etc. Boasts the world’s top polyester film and carbon fibre for aircrafts.
・For 1H (Apr-Sep) results of FY2020/3 announced on 7/11, net sales decreased by 5.8% to 1.1223 billion yen compared to the same period the previous year and operating income decreased by 7.8% to 71.648 billion yen. This was due to the 10.3% decrease in net sales in the fibres business and the 8.6% decrease in net sales of the functional products business as a result of a market slump from the slowdown in the Chinese economy and the U.S. China trade friction dragging out.
・For its full year plan, net sales is expected to decrease by 2.5% to 2.33 trillion yen compared to the previous year and operating income to increase by 2.5% to 145 billion yen. Due to the absence of a large-scale M&A, net cash flow is predicted to return to profitability. In addition, it was reported that they had developed technology that would enable production of the IC tag, a key component in IoT and which is used for product inventory management, etc., at less than 2 yen per piece, which is about one-fifth of the original cost. We can expect the improvement in their financial situation to support business expansion in growth areas.
・Established in 1980. Company operates community-based indoor integrated leisure facilities focusing on bowling / amusement / karaoke / Spo-cha (sports facilities charged by the duration). Launched in the U.S. in 2010.
・For 1H (Apr-Sep) results of FY2020/3 announced on 8/11, net sales increased by 8.8% to 53.188 billion yen compared to the same period the previous year and operating income increased by 24.7% to 5.813 billion yen. In Japan, they are reinforcing the real-time live communication function which connects all Round One facilities across the country, and in the U.S., in addition to opening new facilities and extending operating hours on the weekend, they are implementing measures to raise awareness. The increase in both income and profit have contributed.
・For its full year plan, net sales is expected to increase by 6.2% to 107.64 billion yen compared to the previous year and operating income to increase by 3.2% to 11.81 billion yen. On 22/1, it was announced that the Tokyo 2020 Organisational Committee’s policy would be to implement extra trains for the last train timings and in the late hours of the night in Sapporo, Sendai and Ibaraki in addition to the Tokyo metropolitan area. Since many foreign tourists visiting Japan are unhappy about the lack of late-night entertainment available in Japan, there will likely be increased expectations on the company’s integrated entertainment facilities.