Are Japanese stocks headed for a double bottom? JPMorgan intervenes By Investing.com

Investing.com– Japanese stocks suffered a steep loss over the past week and saw little relief in recent sessions, raising concerns about a potential double bottom, although JPMorgan analysts said that was not their base case.

Japan and indices tumbled into a bear market in early August following bullish signals from the Bank of Japan. While they recouped most of those losses later in the month, they faced renewed weakness in early September, raising concerns about a potential double bottom scenario.

A double bottom scenario is a technical pattern in which the price of an asset drops sharply, recovers, drops again, and then returns to a new uptrend. The pattern usually appears as a “W” shape on an asset’s price chart.

JPM said such a pattern is not its “main scenario” for Japanese stocks. The brokerage cited improving trends in the Japanese economy, particularly in terms of rising wages, improving consumer spending and sustained corporate reforms.

JPM recommends buying weak Japanese markets until the end of 2024, while watching for any upside to US market volatility and lower interest rates.

The brokerage reiterated its overweight position in Japanese markets.

“In Japan, we are beginning to see evidence of rising wages and recovering consumer spending, marking the latest chapter in overcoming deflation, and corporate reforms are accelerating,” JPM analysts wrote in a recent note.

The brokerage said that the recent weakness in stock markets was mainly triggered by concerns about the US election and that markets have now moved too far into fears of a recession.

JPM said there may be “buying opportunities” for Japanese stocks later in the year.