In the fiscal year that closed at the end of March 2014, the total trading value for Japan’s cash equity market was JPY 652.4 trillion, ranking the year in third place behind the marks achieved in 2007 and 2006, but more catalysts are required to keep up momentum this year. Japan is Asia’s biggest market and volumes in Japan are four times larger than any other country in the region.
In the domestic exchange-traded fund market, trading volumes hit a new historical record in 2013, with a daily average of 20.55 million units traded. Derivatives also hit a record high in 2013, with 355 million contracts traded. The Japanese cash equity market is operated by the Tokyo Stock Exchange and the derivatives market is operated by the Osaka Stock Exchange.
Turnover is down by approximately one third from the big second quarter of 2013. In May 2013, Japan’s average daily turnover was US$ 41 billion. Even the reduced number after that May bumper month is still much higher than levels recorded in 2012, the time before investor interest turned back to Japan, when daily turnover was around US$10 billion to US$13 billion.
“Foreigners were those buying during the busy months in early summer 2013,” said Akihiro Ohara, head of sales trading Japan, equities, at Societe Generale in Tokyo. “Foreigners net sold 2 trillion yen of stocks in January to March 2014, and there have been a lot of offshore sellers dumping stocks since the middle of last year.”
This year witnessed a sell-down, by 4 February 2014 the Nikkei was 14% down on the beginning of the year. What could propel volumes upward in future?
“There are a number of Bank of Japan meetings coming up,” said Ohara. “There are a number of different views about timing and a lot of economists are predicting there will be more quantitative easing this month, although according to Nikkei surveys, others think that easing may be held off till July. If easing takes place this month, then I think volumes will pick up again, driven by Japanese retail and especially renewed foreign interest.”
In March 2014, trading volumes were down 8% month-on-month and 26% year-on-year. Whilst quantitative easing would probably give trading a short term boost, investors now need something more substantial beyond money printing and yen weakness in order to encourage sustained improvement.
“Reform is Abenomics ‘third arrow’ and investors are still waiting for movement on that,” said Ohara. “It will take time to pass regulations and laws to help boost the economy. That won’t take just a few months. After that happens Japanese businesses still have to respond. For example, there’s a focus now on opening casino business in Japan, and we see some single-stock interest in the market related to that, but those businesses themselves will take a long time to physically build assets.”