“Individual Japanese have been contrarians and turned net buyers since June. In August, investment trusts saw their sixth consecutive month of net inflows. It maybe too early to call it a full-fledged recovery by Mrs Watanabe, but we know she has got cash and seems ready to invest it,” says Kathy Matsui, Japan strategist at Goldman Sachs.
But Mrs Watanabe can clearly sense fragility in her domestic market and the overhang of China continues to weigh heavily. Three months ago, the Nikkei’s year-to-date gains stood at 19.5 per cent, and the yen was at an export-friendly Y125 against the dollar.
China shattered that in the space of a few terrifying trading sessions. The sudden surge of risk-off behaviour highlighted how easily the yen could revert to a strengthening phase. It is only in the past five trading sessions that the Nikkei has re-emerged from negative year-to-date territory after a sell-off in which panicking global funds used Japanese stocks as an ATM.
The underlying uncertainty remains acute. With nobody expecting a V-shaped recovery from the world’s second-biggest economy, corporate Japan — and its investors — are at this point none the wiser over the force of the coming headwinds.
Kenji Abe, Japan equities strategist at Bank of America Merrill Lynch, says China represents the leading source of uncertainty for Japanese stocks, although he argues that a hard landing has already been largely priced in. Some 15 per cent of the revenues of companies listed in the benchmark Topix index are derived from China: a 1.6 percentage point decline in China’s growth rate, says Mr Abe, would mean a 3.2 per cent decline in Japan’s export volume to China.