Slowdown in China and Emerging Markets and Weakness in Financial Product Markets

「The Japanese stock market rose substantially, and the Nikkei Stock Average approached ¥60,000 in late February after the beginning of the year. Although the Nikkei Stock Average temporarily fell below ¥31,000 in April amid the US tariff shock, confidence spread following the US-Japan tariff agreement in late July, among other factors, and the index moved above ¥50,000 for the first time in October.」

「Japan’s equity market rose sharply, and in late February after the start of the year, the Nikkei Stock Average approached ¥60,000. Following the U.S. tariff shock, the Nikkei Stock Average temporarily fell below ¥31,000 in April, but confidence spread after the Japan-U.S. tariff agreement in late July, among other factors, and the index moved into the ¥50,000 range for the first time in October. Expectations for expansionary fiscal policy under the new Takaichi administration then drove the Nikkei Stock Average up to ¥52,636 on 4 November.」

「During the interim consolidated accounting period under review, hereinafter referred to as the period under review, Japan's economy continued to recover gradually despite the impact of US tariff policies. Personal consumption showed signs of recovery amid persistently high inflation, supported in part by improvements in employment and income conditions. Corporate production showed some weakness, but capital investment, including DX (digital transformation) investment, remained solid. Overseas economies continued to grow steadily despite concerns about rising uncertainty surrounding the trade policies of individual countries, supported by moderating inflation and other factors. The Japanese stock market posted a substantial rise in the first half of the fiscal year. The Nikkei Stock Average fell to ¥31,136 on 7 April amid the US tariff shock. However, following the US-Japan tariff agreement in late July, it established itself above ¥40,000 and temporarily approached ¥44,000 in mid-August. In the United States, expectations for renewed rate cuts increased as inflationary pressures eased, while renewed optimism about the growth of generative AI (artificial intelligence) strengthened the upward momentum in US equities. In Japan, buying spread to semiconductor and generative AI-related stocks, and expectations for politics also increased amid a shift toward expansionary fiscal policy following the change of government. The Nikkei Stock Average reached a record ¥45,754 on 25 September.」

「The Japanese stock market was forced into a period of sharp volatility. The Nikkei Stock Average reached a record ¥42,224 on 11 July, driven by yen depreciation and expectations for growth in generative AI (artificial intelligence). However, it plunged to ¥31,458 on 5 August, its lowest level since 31 October 2023, amid concerns about the US economy and an additional rate hike by the Bank of Japan. Subsequently, as expectations for a soft landing of the US economy and an early additional rate hike by the Bank of Japan receded, and yen appreciation paused, calm returned to the market.」

「The Japanese stock market was forced into a period of sharp volatility. The Nikkei Stock Average rose from its low of ¥37,068 on 19 April, gradually lifting its floor, and the pace of gains accelerated from mid-June. As major US stock indices reached record highs on expectations of US rate cuts and funds flowed into Japanese equities through overseas investment, the Nikkei Stock Average reached a record ¥42,224 on 11 July. However, the record high was temporary. As domestic semiconductor-related stocks fell sharply amid declines in US technology stocks and yen appreciation, the yen strengthened against the US dollar after the Bank of Japan decided on an unexpected additional rate hike at its monetary policy meeting on 31 July. Concerns about a US recession then emerged following the July US employment report, and on 5 August the Nikkei Stock Average plunged to ¥31,458, its lowest level since 31 October 2023.」

「The Japanese stock market reached a historic milestone. The market maintained its upward trend through early July, supported by views that the Japanese economy was emerging from deflation and favorable investor sentiment toward Japanese companies' efforts to enhance corporate value. On 3 July, the Nikkei Stock Average recovered to ¥33,753, a level not seen for approximately 33 years.」

「During the cumulative third quarter under review, hereinafter referred to as the period under review, Japan's economy followed a gradual recovery trend. Although the impact of high prices was evident, personal consumption continued to recover. Against a backdrop of favorable earnings, companies continued investing in DX (digital transformation). Meanwhile, the global economy remained firm despite weakness in some regions due to the effects of monetary tightening.」

「During the cumulative second quarter under review, Japan's economy followed a gradual recovery trend. As prices continued to rise, personal consumption recovered amid improving employment and income conditions. Against a backdrop of favorable earnings, companies also continued investing in DX (digital transformation). Meanwhile, the global economy remained firm overall despite weakness in some regions due to the effects of monetary tightening.」

「During the consolidated fiscal year under review, Japan's economy showed a gradual recovery, partly because of the effects of various policies. Although rising prices affected households and corporate activity, personal consumption remained firm, and sentiment in the service sector and other areas continued to improve as economic activity resumed. Meanwhile, the global economy was affected by worldwide monetary tightening in response to rising inflationary pressures, the highest in 40 years.」

「During the cumulative third quarter under review, hereinafter referred to as the period under review, Japan's economy followed a gradual recovery trend, partly because of the effects of various policies. Although prices showed signs of rising broadly, personal consumption and corporate capital investment postponed during the COVID-19 pandemic continued to recover. Meanwhile, the global economy slowed as major central banks around the world shifted to monetary tightening in response to rising inflationary pressures, the highest in 40 years.」

「During the cumulative second quarter under review, Japan's economy followed a gradual recovery trend. Personal consumption recovered despite rising import prices due to yen depreciation, and corporate capital investment that had been postponed during the COVID-19 pandemic continued to expand. Meanwhile, the global economy slowed as major central banks around the world shifted to monetary tightening in response to mounting global inflationary pressures.」

「Japan's economy was affected by the escalating situation in Ukraine and the stagnation of economic activity in China, but personal consumption recovered as the number of COVID-19 cases declined. Although the yen weakened and resource prices rose, corporate capital investment improved, and the domestic economy was generally on a recovery trend. Meanwhile, the global economy continued to grow gradually despite high inflation.」

「As uncertainty surrounding the situation in Ukraine emerged from the beginning of 2022, concerns were raised about rising raw material prices and other factors, but the global economy was also on an improving trend.」

「Supported by strong corporate earnings reports, the Nikkei Stock Average recovered to just below ¥30,000 through mid-November, but investors temporarily became more risk-averse toward the end of the month as infections with the Omicron variant of the novel coronavirus spread overseas.」

「During the cumulative second quarter under review, Japan's economy continued to recover gradually, despite the effects of measures such as the state of emergency introduced in response to the spread of COVID-19. Personal consumption showed weakness because of requests to refrain from nonessential and nonurgent outings, while corporate capital investment and exports began to recover. Although some emerging economies stagnated, economic activity resumed in Europe and the United States, and the global economy also remained on a recovery trend.」

「During the cumulative first quarter under review, Japan's economy continued to recover despite the impact of the spread of the novel coronavirus. Personal consumption remained weak, but brighter signs emerged in manufacturing production against a backdrop of recovering corporate capital investment and a gradual increase in exports. In Europe and the United States, where COVID-19 vaccinations were progressing, economic activity was returning to normal, and the global economy also moved toward recovery.」

「The Japanese stock market gained momentum in the second half of the fiscal year against a backdrop of expectations for a recovery in the global economy as COVID-19 vaccines became more widely available.」

「During the cumulative third quarter under review, Japan's economy showed signs of recovery from the impact of the spread of the novel coronavirus. Although personal consumption temporarily stalled in some areas, brighter signs emerged in corporate production, and the economy gradually recovered toward the end of the consolidated accounting period for the third quarter under review. The global economy was also in a difficult situation due to the COVID-19 pandemic, but was generally on a recovery trend as a result of policy responses by individual countries.」

「During the cumulative second quarter under review, Japan's economy continued to recover from the impact of the spread of the novel coronavirus. Brighter signs emerged in corporate production and personal consumption, and the economy was gradually recovering toward the end of the consolidated accounting period for the second quarter under review. The global economy was also in a difficult situation due to the COVID-19 pandemic, but began to recover as the effects of policy responses by individual countries took hold.」

「During the cumulative first quarter under review, Japan's economy deteriorated rapidly due to the impact of the spread of the novel coronavirus. However, as corporate production resumed and personal consumption began to recover following the lifting of the state of emergency, the deterioration in the economy appeared to bottom out toward the end of the consolidated accounting period for the first quarter under review. The global economy was also in a difficult situation due to the COVID-19 pandemic, but the effects of policy responses by individual countries were beginning to emerge.」

「Against this backdrop, the domestic economy was substantially depressed by the impact of the global spread of the novel coronavirus that became apparent after the beginning of the year.」

「During the cumulative third quarter under review, Japan's exports showed weakness and corporate production appeared stagnant. Capital investment, however, maintained its growth, while personal consumption remained firm against a backdrop of improving employment and income conditions despite the effects of natural disasters and the consumption tax increase. Although uncertainty surrounding US-China trade negotiations increased in the global economy, accommodative monetary policies in individual countries supported growth.」

「During the cumulative second quarter under review, Japan's corporate production and exports showed weakness, but the economy remained firm as personal consumption continued to recover against a backdrop of gradually increasing capital investment and improving employment and income conditions. Uncertainty about the outlook for the global economy increased because of tensions over US-China trade negotiations, but accommodative monetary policies in individual countries supported growth.」

「During the cumulative first quarter under review, Japan's corporate production and exports showed weakness and lacked strength, while capital investment remained solid and personal consumption was firm against a backdrop of improving employment and income conditions. Although global growth slowed, partly because of US-China trade friction, expectations of monetary easing in major economies provided support.」

「During the consolidated fiscal year under review, Japan's economy was temporarily constrained by a succession of natural disasters during the summer, which curbed growth in exports and personal consumption. Corporate production and exports also showed some weakness after the beginning of the year, but employment and income conditions continued to improve, and the economy generally continued to recover gradually. In the global economy, concerns focused on US-China trade friction and economic downturns in China and Europe, but the global economy continued to recover, partly because the US economy remained on a recovery track.」

「During the cumulative third quarter under review, Japan's economy was temporarily affected by a succession of natural disasters during the summer, but recovery continued as employment and income conditions improved and corporate production maintained gradual growth. Although concerns were raised about the impact of US-China trade friction on the global economy and volatility in the financial and capital markets, the impact during the cumulative third quarter under review was limited, and economies, particularly in Europe and the United States, continued to recover.」

「During the cumulative second quarter under review, Japan's economy continued to recover. Corporate production remained solid, and capital investment maintained an upward trend against a backdrop of favorable corporate earnings. Although concerns were raised about the impact of trade friction on the global economy, its impact during the cumulative second quarter under review was limited, and economies, particularly in Europe and the United States, continued to recover.」

「During the cumulative first quarter under review, Japan's economy continued to recover. Personal consumption continued to regain strength as employment and income conditions improved. Corporate production also remained generally favorable, supported by a gradual increase in exports and solid capital investment. Although concerns were raised about the impact of trade friction, particularly between the United States and China, on the economies of individual countries, its impact during the cumulative first quarter under review was limited, and the global economy as a whole continued to recover.」

「During the cumulative third quarter under review, Japan's economy showed a virtuous cycle. Employment and income conditions continued to improve. Although personal consumption was temporarily affected by unfavorable weather, it generally maintained a gradual recovery trend. Corporate production also moved toward growth as exports increased against a backdrop of the gradual recovery in overseas economies. The excess-demand gap widened as labor supply and demand tightened and domestic and overseas economies recovered. Subsequently, strong earnings at domestic companies, inflows of funds from overseas investors, and record highs in major US stock indices supported by favorable US economic conditions and corporate earnings provided further tailwinds. In October, the Nikkei Stock Average recorded its longest consecutive advance, rising for 16 straight sessions. On 9 November, it reached ¥23,382, its highest level in approximately 26 years, and closed at ¥22,764 at the end of the consolidated accounting period for the third quarter under review.」

「During the cumulative second quarter under review, Japan's economy showed a virtuous cycle, with employment and income conditions continuing to improve, personal consumption gradually recovering, and corporate production and exports continuing to regain strength. Geopolitical risks and political instability in Europe and the United States were sources of uncertainty for the global economy, but the US and European economies also continued to recover.」

「During the cumulative first quarter under review, Japan's economy remained on a recovery track. Employment conditions continued to improve against a backdrop of labor shortages, personal consumption and capital investment gradually recovered, and exports also showed solid momentum. Although heightened geopolitical risks and political instability in Europe and the United States temporarily raised concerns about their impact on the global economy, the US and European economies also remained in a recovery phase.」

「Japan's stock market remained volatile amid the impact of the stronger yen on corporate earnings, monetary policy in Japan and the United States, and speculation surrounding the US presidential election. On 24 June, the Nikkei Stock Average fell to a low of ¥14,864 following the UK's decision to leave the EU, then remained firm after the Bank of Japan increased the annual pace of its purchases of exchange-traded funds (ETFs) tracking stock market indices to approximately ¥6 trillion on 29 July. On 21 September, the Bank of Japan introduced quantitative and qualitative monetary easing with yield curve control.」

「Japan's stock market also saw growing interest among overseas investors in reassessing Japanese equities, driven by expectations of upward revisions to the earnings of export-related companies as a result of the weaker yen. The Nikkei Stock Average closed at ¥19,114 at the end of the third quarter, marking its fifth consecutive annual increase in the year-end closing price.」

「The Nikkei Stock Average subsequently turned higher and remained firm after the Bank of Japan decided on 29 July to increase its annual holdings of exchange-traded funds (ETFs) tracking stock market indices by approximately ¥6 trillion. On 21 September, the Bank of Japan adopted quantitative and qualitative monetary easing with yield curve control, a new framework for strengthening monetary easing, and the Nikkei Stock Average closed at ¥16,449 at the end of the second quarter.」

「During the first quarter of the fiscal year, the Japanese economy showed signs of stagnation, including growing concern over the impact of the stronger yen on corporate earnings and weakening prices due to sluggish consumption, while new sources of medium- to long-term uncertainty for the global economy emerged, including the decision on 23 June for the United Kingdom to leave the European Union (EU).」

「The global economy and financial and commodities markets stagnated as economies in emerging markets such as China slowed and crude oil prices fell, resulting in growing uncertainty in both domestic and external demand.」