Although the Nikkei 225 fell sharply last week, the earnings momentum of Japanese companies remains strong, supporting a long-term investment perspective focused on buying on dips. Concerns over excessive AI investment, a renewed escalation in the Middle East, and inflation and rising interest rates remain, but the view presented places greater weight on the relative cheapness of Japanese stocks and their potential for further gains.
The Nikkei 225 fell 3.9% last week, closing at ¥66,016, a substantial decline. The concerns identified as the causes of July’s multiple shocks, including excessive AI investment, a renewed escalation in the Middle East, and inflation and rising interest rates in both Japan and the US, have not been resolved, and uncertainty remains.
However, earnings at AI- and semiconductor-related companies remain solid, and some believe conditions will continue to favor buying on dips. WTI crude oil futures remained in the $80s, and the outlook was presented that a serious energy crisis would be avoided.
The temporary decline in US ultra-long-term interest rates is viewed as a temporary effect of government intervention. The interpretation presented was that the impact of exchange rates and interest rates may affect speculators but is unlikely to have an immediate effect on the real economy.
Corporate earnings momentum is extremely strong. Net profit at TSE Prime Market companies in the April–June results is expected to have increased by roughly 70% year on year, and more companies revised their full-year earnings forecasts upward. Rakuten Securities Economic Research Institute also revised its forecasts upward.
The investment policy for Japanese stocks remains based on the view that they are undervalued and have significant long-term upside potential. Although volatile price movements are expected in the short term, the current phase is viewed as an opportunity to patiently build positions in companies with strong earnings and low valuations.