Japan’s equity markets have seen extreme turbulence lately, with the Nikkei experiencing its worst one-day drop since 1987 in the first week of August. While market volatility may continue in the near term, Nicholas Price, portfolio manager of the Fidelity Japan Trust plc (LON:FJV) believes that fundamentals and valuations will return to the fore once the selloff has run its course. As a multi-decade investor in Japan, he reflects on the recent challenges facing investors and analyses how he believes the market environment is likely to evolve over the coming months.
Japanese stocks corrected by more than 20% from their peak on July 11, with key indices suffering historic losses on August 5. There were several factors behind this sharp downturn, namely rising concerns about a recession in the US, unexpected hawkishness from Bank of Japan (BoJ) Governor Ueda and accelerating Yen strength leading to an unwinding of the carry trade.