Japan Stocks Recovery to Return in November – BofA By Investing.com

Investing.com– A recovery in Japanese stocks after a slump in August is expected to begin towards the end of the year, BofA analysts said, especially after uncertainties over the US and local elections have cleared.

Japan and indices plunged into a bear market in early August on the back of a Bank of Japan and stronger market. Although they have since rebounded sharply, they were still trading well below the peaks reached earlier in the year.

BofA said it expects that recovery to start from November, particularly after the US presidential election, which is expected to be a tight race between Donald Trump and Kamala Harris.

Japanese half-year earnings are also due in November and are expected to provide more insight into how much the yen’s appreciation has hurt the company’s earnings in recent months. But the brokerage doesn’t see “significant deterioration in earnings.”

BofA said it preferred stocks with exposure to domestic demand, especially as private consumption appeared to be improving in recent months. Exposure to high-quality cyclicals was also recommended by the brokerage on expectations of looser monetary policy in key overseas markets of Japan.

In addition, the ruling Liberal Democratic Party will hold leadership elections on Friday, effectively deciding Japan’s next prime minister. BofA said Japanese markets could see some volatility following the election, although the next prime ministerial candidate is likely to continue PDL policies in the short term, heralding little disruption.

The overall impact of the LDP election is expected to be “transient,” BofA said.

A leadership change in Japan is also expected to somewhat delay the Bank of Japan’s plans to raise interest rates further, which could limit the yen’s overall strength. BofA said that while there is room for more rate hikes, it expects a “reasonable pace” of hikes from the BOJ to cause little disruption to the stock market’s recovery.

BofA said Japanese markets are likely already in a recovery phase, with risk sentiment expected to recover in about two to three months after a major crash.