Affected by the sharp downturn in the US stock market yesterday, the Nikkei 225 index opened today with a gap down of 5%, and as of the time of submission, it fell by 5.71%.

As for the ETF, the Japan TOPIX ETF, the E Fund Nikko N225 ETF(QDII), the Huaan MUFU N225 ETF(QDII), and the CCB Principal N225 ETF all fell by 5.45%, 4.92%, 4.86%, and 4.35%, respectively.

On the news front, the latest US employment data was weak, and the manufacturing data was again below the boom-bust line. The market's concerns about a US economic recession resurfaced, as well as Intel's Q2 performance warning, and Amazon's Q3 overall sales and earnings guidance lower than market expectations, which caused a decline across the technology sector. Today, the Nikkei followed the overnight plunge of the US stock market and opened with a gap down.

The US July ISM Manufacturing Index was 46.8, had a forecast of 48.8, and the June value was 48.5. Among them, the new order index was 47.4, the forecast was 49, and the June value was 49.3; The production index fell to a four-year low of 45.9. The output index has fallen cumulatively 8.7 points since the end of Q1. The employment index was 43.4, which was significantly lower than the expected 49.2 and hit its lowest level since June 2020.

Analysis shows that the US manufacturing sector shrank for the fourth consecutive month in July, and last week's surge in jobless claims once again raised concerns about a possible recession in the US economy.

As a typical export-oriented country, Japan's major trading partner is the United States. If the US domestic demand weakens, it will drag down Japan's economy. Meanwhile, the Bank of Japan raised interest rates by 15 basis points in July, which drove the yen exchange rate crazy. This also hit Japan's export business to a certain extent.

World Bank data shows that Japan's export scale in 2022 accounts for 21.5% of GDP.

In fact, the Japanese stock market has been affected by two factors, one is the reflection of the US stock market, and the other is Japan's own economic resilience.

From the perspective of the reflection of the US stock market, there are mainly two aspects: whether the US is in an economic recession and the trend of US technology stocks.

Regarding whether the US economy is in recession, the CICC team believes that there is no clear evidence or signal that the US economy is facing recession pressures at present.

The just-released US Q2 GDP annualized quarter-on-quarter growth was 2.8%, not only far exceeding the expected 2%, but also significantly higher than Q1's 1.4%; overall and core PCE in June also exceeded expectations. If there are factors of increased risk assets, it is more about the slowing of growth rather than a recession.

From the perspective of the trend of US technology stocks, the poor performance of leading stocks was the direct cause of the US stock market's sharp fall.

However, Japan has already fallen by nearly 13% since July 11, which to a certain extent reflects the negative impact mentioned above.

The Bank of Japan dared to raise interest rates at this time, indicating a certain degree of confidence in the resilience of the domestic economy.

From the perspective of the profit changes of non-financial companies in Japan, after reaching a historic low in Q3 2023, Japanese corporate profits continued to climb for two consecutive periods. At the end of March 2024, the net profit of listed Japanese companies surged by 24%.

From the perspective of capital expenditures of Japanese companies, the survey data released by the Japanese Economic News Agency shows that in the 2023 fiscal year, the actual amount of equipment investment in all industries in Japan reached JPY 31,996.3 billion, a year-on-year increase of 17.3%, mainly invested in semiconductors, AI, electric vehicles, chemical machinery, and other fields.

From the perspective of the consumer market in Japan, the statistical report released by the Japanese Ministry of Economy, Trade, and Industry showed that the total retail sales in the retail trade in Japan in the 2023 fiscal year reached JPY 163 trillion, an increase of 5.6% over the 2022 fiscal year. This shows that there is still elasticity in private consumption.

At the same time, Japanese workers' wages continue to rise. On the one hand, in response to the rising cost of living and labor shortages, large Japanese companies will raise employee wages by 5.1% this year, the largest increase in more than 30 years. The wage increases for small and medium-sized enterprises with fewer than 300 employees is 4.45% this year.

On the other hand, Japanese Prime Minister Fumio Kishida and the Bank of Japan both regard the ability of small and medium-sized enterprises to raise wages as a key point of economic policy. The latest news is that the Japanese government has set a new goal and plans to raise the minimum wage to JPY 1,500 per hour by the mid-2030s.

Therefore, from the perspective of Japan's domestic economic situation, the economy is still relatively resilient. As long as the profits of listed companies continue to grow, the rebound of the stock market may not be a problem.

Currently, there are five Japanese-themed ETFs in A-shares, the largest being Huaan Fund's Huaan MUFG N225 ETF(QDII) with the latest size of 2.162 billion yuan.