■Stock Market Outlook

Forecast range: Upper limit 39,500 yen - Lower limit 38,000 yen

On the 20th, the US stock market rose. The Dow Inc closed up 498.02 dollars at 42,840.26 dollars, while the Nasdaq finished 199.83 points higher at 19,572.60. The Nikkei 225 futures on the Osaka Exchange night session ended trading at 38,880 yen, up 170 yen compared to the day session closing price. In the foreign exchange market, the dollar-yen exchange rate was around 156.40 yen per dollar.

Having passed the year's last important events of the US and Japan central bank meetings, the market is entering a year-end mode of quiet trading. This week, reports concerning the consideration of a merger between Nissan Motors and Honda directed attention towards automobile stocks and auto parts suppliers on the Main Board, where the trading value consistently recorded between 4 trillion yen and 5 trillion yen.

However, next week will see the passage of important events, and many Overseas Institutions will enter Christmas holidays, leading to a decrease in the trading volume of the Main Board, with individual investors likely becoming the main players in the market. The 26th of this month will be the last trading day for preferential dividends, which may heighten interest in December fiscal companies. Due to the anticipation for the 'tail end spike,' individual investors may also turn their attention to Australian Small/Mid Cap stocks in the Standard and Growth markets, resulting in market movements centered around individual stocks. Including those listed on the Main Board, short-term funds may flow in and out of low-priced stocks priced between 100 to 200 yen, potentially leading to a series of rapid rises and falls.

In the 2023 year-end meeting, the Nikkei Average stood at 33,464 yen, marking an annual increase of 7,369 yen, the second largest after 8,756 yen in 1989. The Nikkei Average for 2024 not only updated the highest record since the bubble period but also marked the first time ever above 40,000 yen, along with the largest decline of 4,451 yen on August 5 and the largest recovery of 3,217 yen the following day on August 6, making it truly a historic year. While it seems challenging to see the new year transition at 40,000 yen for the first time, an update of the highest year-end closing value exceeding the 38,915 yen from 1989 is desired. With only six trading days left until the year-end meeting, if the current level can be maintained, it would be a record within reach. Though a rise of about 5,000 yen for annual performance suggests cosmetic buying might not be expected, hopes are for a 'last burst of strength' from the Nikkei Average.

■Foreign Exchange Market Outlook

Next week, the dollar-yen is expected to show steady movements. The US Federal Reserve (FRB) decided on an additional 0.25 point rate cut at the Federal Open Market Committee (FOMC) meeting scheduled for December 17-18. However, the number of anticipated rate cuts next year has been reduced to two based on the simultaneously released policy interest rate outlook. The strong outlook for US interest rates is fading, and a gradual trend of dollar appreciation and yen depreciation is likely to continue. Recent US inflation indicators have shown signs of re-acceleration, and depending on upcoming data releases, the policy interest rate outlook may be revised.

On the one hand, the Bank of Japan is expected to refrain from additional interest rate hikes at the monetary policy decision meeting held on the 18th-19th, and maintaining the policy interest rate is anticipated for January as well. The core consumer price index (Core CPI) for November announced on the 20th recorded a growth that exceeded market expectations, but many believe the Bank of Japan is anticipating rate hikes after March next year.

Moreover, if the dollar continues to strengthen and the yen to weaken, the Japanese government may express concerns again, but if foreign exchange intervention by the Japanese government and the Bank of Japan is not swiftly implemented, the dollar-yen exchange rate may exceed recent highs and aim for 160 yen once again.

■Highlighted schedule for next week

December 23 (Monday): USA Consumer Confidence Index (December), UK GDP revised figures (July-September), etc.

December 24 (Tuesday): Minutes from the Bank of Japan's Policy Committee and Monetary Policy Decision Meeting (October 30-31), indicators to capture the underlying inflation rate (Bank of Japan), Nationwide Department Stores revenue (November), shortened trading in the US Stock Market, US Durable Goods Orders (November), US New Housing Sales (November), etc.

December 25 (Wednesday): Governor Ueda of the Bank of Japan gives a speech at the Keidanren Council, Corporate Services Price Index (November), Leading Economic Index (October), Coincident Index (October), US, Europe, UK, Hong Kong Stock Markets will be closed for the holiday (Christmas), etc.

December 26 (Thursday): Housing Starts (November), US New Unemployment Insurance Claims (last week), Stock Markets in the UK, Europe, Hong Kong will be closed, etc.

December 27 (Friday): Main opinions from the Bank of Japan's Monetary Policy Decision Meeting (December 18, 19), Industrial Production Index (November), Tokyo CPI (December), Unemployment Rate (November), Effective Job Offer Ratio (November), Retail Sales (November), US Wholesale Inventory (November), China Industrial Profits (November), China Current Account balance confirmed figures (July-September), etc.