Is the Japanese stock market also a "Trump trade"?

The first debate of the US election last week continues to stimulate the market. With Biden's defeat, the "Trump trade" is making a comeback, with analysis suggesting that the Japanese stock market may become a potential winner in Trump 2.0.

On Thursday, the Japanese stock market saw a frenzy. The Nikkei index broke through the peak of the bubble period, closing at 2872.18, reaching a historical high since December 1989. The yen hit a new low in a decade, with the current USD/JPY exchange rate at 161.28. On Friday, the Japanese stock market opened at a new historical high.

Analysis suggests that under the "Trump trade," the US dollar is expected to remain strong, bringing downward pressure on the yen, which will benefit Japanese stocks.

According to media reports citing Tomo Kinoshita, Global Market Strategist at Sumitomo Mitsui Asset Management Japan, "As US bond yields rise and the yen depreciates against the US dollar, this will support the Japanese stock market."

Historically, the Japanese stock market has experienced similar situations. After Trump won the US presidential election in 2016, the Nikkei index rose nearly 30% in USD terms within a year, outperforming the S&P 500 and MSCI World Index, which rose by about 20% each during the same period.

The USD/JPY exchange rate is close to a 36-year low, and Japan's 30-year government bond yield hit a 13-year high last Thursday, ending years of low interest rates. Some analysts believe that the Japanese economy has escaped deflation and is gradually recovering.

Naka Matsuzawa, Chief Strategist at Nomura Securities Co., believes:

The Japanese stock market will be one of the better choices for global investors, and with the Bank of Japan shifting from an ultra-loose policy, the performance of bank stocks should improve.

Given that the Japanese stock market is dominated by manufacturing companies, the depreciation of the yen is good news for Japanese manufacturing exports, especially for manufacturers like Toyota and Nissan. According to data from the Tokyo Stock Exchange, manufacturing companies account for more than half of Japan's market capitalization.

Some analysts remain cautious, believing that if Trump is re-elected, Japan may not necessarily be the safest market in Asia. Jasmine Duan, Senior Investment Strategist at RBC Wealth Management Asia, believes that if the yen continues to weaken, the Trump administration may take action to force the yen to appreciate, which in turn could benefit stock markets in other countries