Navigating Increased Volatility and Searching for a Stable Bottom
2025-04-17
■ Japanese stocks are showing signs of undervaluation, while U.S. stocks may still experience further downward adjustment.
■ As we enter a phase of corporate earnings downgrades, the stock market could potentially establish a stable bottom.
U.S. President Trump's announcement of mutual tariffs on April 2nd significantly exceeded market expectations, triggering a decline in both Japanese and U.S. stock markets. Japan's TOPIX index experienced a substantial 20.5% drop from its recent peak of 2821.90 points on March 27th to a low of 2243.21 points on April 7th. During this period, the forward price-earnings ratio (PER) of the TOPIX fell sharply from 13.9 times to 11.1 times, breaching the lower end of its perceived undervalued range of 12-14 times. This decline in PER suggests that the market has already factored in an anticipated 20% decrease in earnings per share (EPS), indicating that the stock market correction has reached a level reflecting undervaluation.
On April 10th, news emerged that the implementation of additional tariffs on certain countries and regions would be delayed for 90 days. Furthermore, the easing of concerns regarding automobile tariffs and the exclusion of electronic products have gradually restored investors' risk appetite, leading to a stock market rebound and a move towards relative stability. Against this backdrop, Japan's Minister of Economic Revitalization, Akazawa, is scheduled to visit the United States from April 16th to 18th for discussions with Treasury Secretary Bessent and Trade Representative Greer on tariffs. The market is keenly watching the direction of issues such as tariffs, non-tariff barriers, exchange rate policies, and government subsidies. Additionally, Finance Minister Kato may meet with Treasury Secretary Bessent during the G20 Finance Ministers and Central Bank Governors Meeting on April 23rd and 24th to discuss exchange rate policies. Consequently, the potential for a decline in the U.S. dollar/yen exchange rate could exert downward pressure on the stock market, necessitating continued vigilance.
Conversely, the correction in the U.S. stock market appears to be less pronounced. The S&P 500 index fell by 16.4% from its recent high of 5786.95 points on March 25th to a low of 4835.04 points on April 7th. Over this period, the estimated price-to-earnings ratio (PER) has decreased from 21.0 times to 17.5 times. While this movement has taken the stock market out of its overvalued range (19-22 times), it has not yet reached the lower limit of the undervalued range (16-19 times), suggesting that further downward adjustment is possible. Should the U.S. stock market continue its correction, the Japanese stock market, despite its relatively undervalued position, could also experience a concurrent decline, warranting continued caution.
Federal Reserve Board (FRB) member Waller has indicated that if the average tariff rate increases significantly from under 3% at the end of last year to 25% due to mutual tariffs, a response involving interest rate cuts to address a deteriorating labor market would be necessary. However, if tariff negotiations maintain the tariff rate around 10%, the scope for financial policy intervention may be limited. The general market consensus is that even if a unified 10% tariff is maintained and additional tariff rates are reduced, corporate performance will likely face pressure. While the risk of stock market adjustment persists, the market is expected to gradually transition into a phase of corporate earnings downgrades. Amid the positive and negative influences of tariff negotiations, the stock market may enter a trend towards establishing a stable bottom.
■ As we enter a phase of corporate earnings downgrades, the stock market could potentially establish a stable bottom.
U.S. President Trump's announcement of mutual tariffs on April 2nd significantly exceeded market expectations, triggering a decline in both Japanese and U.S. stock markets. Japan's TOPIX index experienced a substantial 20.5% drop from its recent peak of 2821.90 points on March 27th to a low of 2243.21 points on April 7th. During this period, the forward price-earnings ratio (PER) of the TOPIX fell sharply from 13.9 times to 11.1 times, breaching the lower end of its perceived undervalued range of 12-14 times. This decline in PER suggests that the market has already factored in an anticipated 20% decrease in earnings per share (EPS), indicating that the stock market correction has reached a level reflecting undervaluation.
On April 10th, news emerged that the implementation of additional tariffs on certain countries and regions would be delayed for 90 days. Furthermore, the easing of concerns regarding automobile tariffs and the exclusion of electronic products have gradually restored investors' risk appetite, leading to a stock market rebound and a move towards relative stability. Against this backdrop, Japan's Minister of Economic Revitalization, Akazawa, is scheduled to visit the United States from April 16th to 18th for discussions with Treasury Secretary Bessent and Trade Representative Greer on tariffs. The market is keenly watching the direction of issues such as tariffs, non-tariff barriers, exchange rate policies, and government subsidies. Additionally, Finance Minister Kato may meet with Treasury Secretary Bessent during the G20 Finance Ministers and Central Bank Governors Meeting on April 23rd and 24th to discuss exchange rate policies. Consequently, the potential for a decline in the U.S. dollar/yen exchange rate could exert downward pressure on the stock market, necessitating continued vigilance.
Conversely, the correction in the U.S. stock market appears to be less pronounced. The S&P 500 index fell by 16.4% from its recent high of 5786.95 points on March 25th to a low of 4835.04 points on April 7th. Over this period, the estimated price-to-earnings ratio (PER) has decreased from 21.0 times to 17.5 times. While this movement has taken the stock market out of its overvalued range (19-22 times), it has not yet reached the lower limit of the undervalued range (16-19 times), suggesting that further downward adjustment is possible. Should the U.S. stock market continue its correction, the Japanese stock market, despite its relatively undervalued position, could also experience a concurrent decline, warranting continued caution.
Federal Reserve Board (FRB) member Waller has indicated that if the average tariff rate increases significantly from under 3% at the end of last year to 25% due to mutual tariffs, a response involving interest rate cuts to address a deteriorating labor market would be necessary. However, if tariff negotiations maintain the tariff rate around 10%, the scope for financial policy intervention may be limited. The general market consensus is that even if a unified 10% tariff is maintained and additional tariff rates are reduced, corporate performance will likely face pressure. While the risk of stock market adjustment persists, the market is expected to gradually transition into a phase of corporate earnings downgrades. Amid the positive and negative influences of tariff negotiations, the stock market may enter a trend towards establishing a stable bottom.