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Japanese stocks have completely shaken off the impact of the plummet caused by Trump’s tariffs.

The Nikkei average closed almost at its high with a rise of over 700 yen. It broke above the 200-day moving average without being held back. The 25-day moving average achieved a golden cross by moving above the 75-day moving average from below, and the next golden cross with the 200-day line is now in sight.

[Nikkei Average and Moving Average Line Trends (Green: 25 days, Yellow: 75 days, Orange: 200 days)] Source: Monex Securities Site Looking at it this way, it can be said that Japan stocks have completely dispelled the impact of the sharp decline due to the Trump tariffs. The reason for this, as I have said before, is that the limits of Trump’s policies are beginning to be seen. Yesterday’s sharp rise came after the U.S. Court of International Trade ruled that a blanket tax on imports was beyond the president’s authority, blocking most of the tariffs imposed by President Trump. At first, the world was confused by the announcement of a tariff policy that was too reckless, but in the end, Yomi is becoming mainstream because it will “settle down where it settles.”

The Difference in Stock Price Trends Between the Nikkei Average and TOPIX Lies in the Strength of Earnings Forecasts

The TOPIX chart is looking even better. Since the plummet in the summer of 2024, the movement from the end of August shows a gradual but upward trend. It is just 10 points shy of the recent high of 2821 points reached in late March. If it surpasses this level, the upward trend will strengthen even further.

[TOPIX Movement] (Source: Boomberg) While the Nikkei Average has not yet reached the consolidation range for autumn 2024, the strength of the TOPIX is prominent. This difference is due to the disparity in the robustness of earnings forecasts.

When comparing the forecasted EPS (earnings per share) for the Nikkei Average and TOPIX, using October 1, 2024, as the baseline of 100, the EPS for the Nikkei Average has not fully escaped its downward trend since peaking in February, whereas TOPIX has nearly returned to its highest value and is positioned higher than last autumn.

The differences in stock price trends honestly reflect the performance.

While the Nikkei Average is influenced by the high-priced semiconductor stocks, the strength of the domestic sector, led by the strong performance of banks in particular, seems to more than offset the significant decline in profits of the automobile sector.

[Comparison of the expected EPS of the Nikkei Average and TOPIX] (Source: Created by Monex Securities from QUICK data) Attention is being drawn to long-term interest rates, but I will comment on this at another time. Although the benchmark 10-year government bond yield remains elevated, it has not reached a new high.

[Japan Government Bond Yield Trends] (Source: Bloomberg) If we discount the forecast EPS of TOPIX with the current 10-year bond yield plus a 5% risk premium, it amounts to 2780 points. It can be said that the current level of TOPIX is roughly at fair value.