January Market Outlooks:

Donald Trump will be inaugurated as the President of the United States, with his cabinet selected, and the Trump administration will be launched on January 20th. He aims to fulfill the promises made during the election. Economically, the scope and timing of tariffs on China, Mexico, and Canada are issues. It is also expected that measures to reduce the U.S. huge trade deficit and strengthen the domestic economy. Sucseedingly, balance of trades will be applied for Japan and European countries. The new president's policies will start with correcting (reversing) the mistakes of former President Biden's policies. He will changes policies for immigration, currency and exchange rates, and other policies.

Japanese Stocks:

Rising. due to the unfavorable economic and political environment in China and Europe, Japan is being chosen as an investment destination for public pensions found from the U.S. and Europe. Domestic inflation is progressing, and there are few forces to counter it, leading to a decrease in the value of cash. With government policy shifts like NISA and the guidance from savings to investment, stock prices are expected to rise in the first half of this year.

U.S. Inflation Issue:

The FOMC's Chairman Bernanke implemented a 0.25% rate cut last December. After reaching record the highest, the NY Dow Average, NASDAQ, and S&P 500 fell a bit and took a break. In the U.S., where the income gap is severe, this further strengthens the income disparity. Although inflation has calmed down, Trump's economic policy towards China anticipates an increase in tariffs on imported goods, making the ports on the U.S. West Coast busy with imported goods.

End of the Ukraine War:

President Zelensky's term ended last May, and if elections are held soon, he will lose his position. The percentage of citizens wanting to continue the war has dropped to 30%, and most Ukrainians want a ceasefire. The Trump administration will move towards ending the stalemate between Ukraine and Russia. President Zelensky's condition for a ceasefire is to become a NATO member, which Russia is unlikely to agree to.

Europe's Commitment to the Ukraine-Russia Conflict:

Germany, France, and Italy are showing economic stagnation, with Germany's Deutsche Bank and Volkswagen nearing bankruptcy. Supporting Ukraine has led to the cessation of cheap natural gas supply from Russia, and securing alternative energy is costly. Major German companies have been moved production bases to China due to low labor costs, but the rapid industrialization in China has worsened the situation. Currently, cheap Chinese EVs are being exported to Europe in large quantities, causing a sharp decline in the market share of German cars. Volkswagen plans to close most of its factories in Germany. The EU has proposed defensive measures such as raising import tariffs on Chinese EVs by 130%, but China, facing a major recession, is unlikely to compromise easily.

Narrowing Economic Gap Between G7 and BRICS:

China, the world's second-largest economy by GDP, surpasses the U.S. in trade volume with Africa, South America, Asia, and Europe, making it the world's No.1 in trade volume. Many countries are heavily dependent on China. Ignoring this fact could lead to unexpected failures for politicians and economists. France and Germany, leading the EU, are economically stagnant and reliant on China. However, China's political and economic turmoil continues, and there is no prospect of economic recovery in European countries, leading to further inflation and a decline in the quality of life for citizens.

Europe's Dilemma:

Historically, Europe has emphasized the importance of avoiding war since the Roman Empire, but it committed to supporting Ukraine at the request of the Biden administration, and after more than two years, there is no prospect of a Ukrainian victory. The EU was established to create a European economic zone that could compete with the U.S. and Japan, but the increase in member countries has created a dilemma of having to unite 27 countries. The decision-making speed is slow, and the development of high-tech industries to lead the global economy is still halfway. In the financial sector, the most reliable Credit Suisse bank in Switzerland has gone bankrupt. Trump's America First policy is clear, leading to an increase in Europe's military spending and a tough trade war with China.

Falling Chinese Economy:

China's real estate and construction industries, which account for over 30% of its GDP, are facing defaults, unable to repay principal to overseas investors despite paying interest, and unable to pay interest to domestic investors. Housing construction in China is stagnant. The industry is seeking funding from the government but faces difficulties as the total debt of banks, local governments, real estate brokers, and the Chinese government amounts to 7,000 trillion yen, nearing panic. The continued Xi administration has worsened U.S.-China relations by advocating for the annexation of Taiwan. The U.S. government is also taking a tough stance on trade with China. The top executives of major private companies leading China's export trade have been purged by Communist Party members, and the new executives lack vigor, unable to foster corporate vitality. The top executives of remaining excellent companies in China have lost their motivation to work, becoming compliant managers like their Japanese counterparts. The attitude and motivation of corporate leaders significantly impact performance, and naturally, the performance of leading Chinese companies has plummeted. GDP continues to decline. With the enactment and enforcement of the Anti-Espionage Law, the risk of business visits to China has increased, with more cases of visitors being arrested on suspicion of espionage at airports upon returning home.

Reviving the Chinese Economy:

To stop this downward trend, the Chinese government lowered the lending rate of the People's Bank of China to 2% on September 28th to improve the economic situation, and eased housing acquisition regulations in cities like Beijing, leading to a sharp rise in stock prices. Whether the decline in investment interest from Western capitalists in China will stop and increase depends on the future policies of the Chinese Communist Party.

Exchange Rates Japan:

The Ministry of Finance intervened in the exchange rate in July, causing a sharp rise to 139 yen, but it did not last, and at present, the rate returned to 157 yen per dollar. The Bank of Japan will decide to raise the policy interest rate to 0.25% based on the economic situation under the Trump administration.

Bank of Japan's Desire for Change:

The low-interest or negative interest rate policy, known as helicopter money, has been used as a stimulant for economic recovery. Former Governor Kuroda continued this policy for ten years under the Abe administration's Abenomics, but it did not lead to the revival of the Japanese economy and instead hindered growth. Kuroda continuously purchased stocks through the ETF market to activate the stock market and exceeded the limit of prohibited government bond purchases, resulting in a balance of 8,000 trillion yen in government bonds. Therefore, raising interest rates would significantly worsen the Bank of Japan's balance sheet, making it difficult for the new Governor Ueda to raise rates easily. The 0.25% rate hike on July 31st was inevitable, but it was a bit too stimulating for the economist,, academic, and market participants accustomed to low-interest rates. The group promoting yen carry trade, favored by Western investors using ultra-low interest rates, feared yen appreciation, causing the largest drop in the Tokyo stock market through AI program trading.

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