In the morning session of October 2nd trading, there are three points worth noting.

Focus on defense-related stocks in addition to movements exploring policy-related aspects due to the inauguration of the Ishiba administration.

Daiseki, 2Q operating profit decreased by 5.4% to 7.327 billion yen.

Morning focus points: DMG Mori Seiki to increase engineers for setup and repairs in the U.S. by 1.5 times to 400 people by 2028.

Focus on defense-related stocks in addition to movements exploring policy-related aspects due to the inauguration of the Ishiba administration.

In the Japanese stock market on the 2nd, amid concerns about geopolitical risks, it is expected that selling will lead the way. On the 1st, the U.S. market saw the NY Dow down 173 points and the Nasdaq down 278 points. Amid ongoing selling due to the Federal Reserve's cautious approach to interest rate cuts and concerns over the September ISM manufacturing index falling below expectations, worries about an economic slowdown intensified. Furthermore, reports of Iran launching missile attacks on Israel raised concerns about the deteriorating situation in the Middle East, strengthening selling pressures further. The Chicago Nikkei 225 futures closing price was 740 yen lower than Osaka at 38,030 yen. The yen is currently trading around 143.40 yen per dollar.

The Nikkei average is likely to start with a selling lead following the adjustment to the Chicago futures. Tensions have risen with Iran launching missiles towards Israel, raising fears of triggering a full-scale war in the Middle East, which will likely require close monitoring of developments in the region for some time. While defense-related stocks were bought in the U.S., the weakness in semiconductor stocks was prominent, so this trend is expected to continue in the Tokyo market as well.

Although there were moments during the night session when the Nikkei 225 futures dropped to 37,600 yen, the 25-day and 200-day moving averages at the same level were being viewed as support levels. Subsequently, the battle continued around the 75-day moving average level, so after a round of selling, it seems crucial to assess the stability around 38,000 yen. The increasing geopolitical risks make it easier for risk-off sentiment to prevail, but the yen is trading in a calm manner around the mid-143 yen per dollar level.

Furthermore, it was reported that major trading companies' shares were bought as famous investor Warren Buffett's Berkshire Hathaway plans to issue yen-denominated corporate bonds. With expectations to strengthen investment in Japan, there seems to be strong buying interest on pullbacks. While there is a possibility that high-tech stocks with large index impact could be a burden on the Nikkei Average's performance, funds are likely to flow into domestic defensive shares and others. Additionally, with the establishment of the Ishiba administration, there may be an increase in movement to explore policy-related investments, in addition to defense-related stocks.

Daiseki's operating profit for the 2nd quarter decreased by 5.4% to 7.327 billion yen.

Dai Seki <9793> announced its financial performance for the second quarter of the fiscal year ending February 2025, with revenue decreasing by 8.3% year-on-year to 32.7 billion 91 million yen, and operating profit decreasing by 5.4% to 7.3 billion 27 million yen. Dai Seki updated its highest sales and profits to date. Dai Seki Environmental Solutions' soil contamination treatment related business experienced a decline in revenue and profit due to the completion of a large-scale soil treatment project ordered the previous year, but remained within the consensus range.

Materials of concern in the morning session

Nikkei Average is up (38651.97, +732.42)

U.S. crude oil futures are up (69.83, +1.66)

Long-term US interest rates fell.

Expectations for inflation to ease in the US.

Active share buybacks

Request for improvement in corporate value by the Tokyo Stock Exchange.

・DMG Mori Seiki <6141> to launch in the US, increase engineers for repairs, 400 people doubled by 1.5 times in 2028.

・Toyota Motor <7203> starts "Toyota Battery", expands for rechargeable batteries for PHV and EV.

・Mizuho Financial Group <8411> capital alliance with US asset management company, provides products to domestic wealthy individuals.

・Teijin <3401> partners with Singaporean bio company in regenerative medicine CDMO.

・SoftBank Group <9984> invests 71.4 billion yen in US OpenAI.

・Kansai Electric Power <9503> exceeding the standard values of pillar type transformers for the Kansai Electric Power Transmission and Distribution Group concealed.

Nidec <6594> acquires a Canadian press machine peripheral equipment manufacturer.

Chiyoda HD <1963> demonstrates waste oil collection for SAF, collaborating with Kobe City.

JR West Japan <9021> inspects press-fitting operations on axles, suspends operation of 2 conventional line cars.

Toyota Tsusho <7282> invests in new conveyor robot venture, enhancing on-site competitiveness.

IIJ <3774> collaborates with Japan IBM and Mitsubishi UFJ Bank on 'Shared Infrastructure' for regional banks.

Hitachi <6501> Hitachi High-Tech group partners with GeneBay for human genome outsourcing analysis.

Fujitsu <6702> collaborates with STELLAR SCIENCE FOUNDATION to support young researchers.

OKI <6703> visualizes power usage, standardizes packaging for production sites.

・Nisshinbo Holdings <3105> Nisshinbo Micro Devices, developing switches for 5G base stations.

・NEC <6701> System delivery to JR West Group for entry and attendance management using facial recognition.

・Shimizu Construction <1803> Develops dedicated equipment for comprehensive support of bridge pier replacement work on expressway bridges.

・Resona Holdings <4004> Jointly developing 8-inch SiC substrates with a French company.

・Tokyo Gas <9531> To raise low-voltage electricity prices in March next year reflecting increased costs.

・DOWA Holdings <5714> Invests 1 billion yen to double recycling capacity for four home appliances.

・JFE Holdings <5411> JFE Steel launches dry bulk ship featuring green steel material.

・Daio Paper <3880> CNF water dispersion liquid adopted for indoor air-improving paint.

Japan Chemical Industry <4094> EV battery recycling, demonstration plant in Fukushima.

Nippon Paint Holdings <4612> new paint factory in Kanagawa.

Nishimatsu Construction <1820> starts demonstration of rasel blending oil.

☆ Schedule of events in the morning session

08:50 September monetary base (August: year-on-year +0.6%).

Not applicable.