The Japanese Rally?
Chart of the Week:
Fed Cuts 25 bps, Upgrades Growth Outlook; Rates No Longer Restrictive
The Fed cut rates 25 bps this month to 4.00–4.25%, in line with expectations. While still noting elevated inflation, it revised “labor market remains strong” to “job growth slowing, unemployment edging up.” The Fed now sees inflation and employment risks as balanced, shifting policy from restrictive to neutral, not accommodative.
Market Recap 1:
Tech Giants Attract Capital, AI Momentum Lifts Sector
U.S. tech stocks extended gains on multiple tailwinds: Musk disclosed a $1bn Tesla purchase; Meta launched new AI+MR devices at Connect, expanding smart device markets; Nvidia invested $5bn in Intel to co-develop data center AI systems integrating Intel CPUs with Nvidia GPUs. These boosted IT, consumer discretionary, and communication services, driving U.S. indices higher, led by the SOX and Nasdaq. With the rate-cut cycle underway, risk sentiment improved while defensives—healthcare, staples, and utilities—lagged.
Market Recap 2:
Fed Cuts 25 bps, Dollar Weakens; 2026 Limited Easing Caps Bonds
At its September meeting, the Fed shifted policy from restrictive to neutral on labor-market concerns. The dot plot signaled 75 bps of cuts in 2025, but only 25 bps in 2026—below market expectations—triggering selling in Treasuries and IG credit. In contrast, HY gained on improved risk sentiment. EM local-currency debt outperformed as a weaker dollar supported FX.
What’s Trending:
Musk Buys \$1B in Tesla Shares, Sending Strong Bullish Signal
On Sept 8, 2025, Musk posted on X, “You’ll Thank Me Later,” leaving markets puzzled. A week later, Tesla’s Sept 15 SEC Form 4 filing revealed he had purchased 2.57mn shares on Sept 12, worth \$1B, signaling Tesla shares are undervalued.
In Focus 1:
Stronger Wage Growth Boosts Consumption, Supporting Japan’s Economic and Earnings Recovery
Japan’s July wages surged on higher summer bonuses, lifting nominal wage growth across the board. With government summer power subsidies and controlled rice prices, inflation eased to just above the BoJ’s target, pushing real wages positive for the first time this year. Wage and inflation data support a tightening bias, but after PM Ishiba’s resignation, the Oct 4 leadership race features frontrunners with neutral-to-dovish policy stances, easing BoJ hike pressure. Near-term, equities remain supported.
In Focus 2:
Japan Domestic Plays Gain From Consumption Recovery; Small-Mid Caps More on Local Demand
Despite a rebound in export-driven semiconductors, supported by Fed rate-cut expectations and yen weakness, inflation above the BoJ’s 2% target and strong wage growth leave room for future hikes. Domestic demand stocks are better shielded from FX volatility and continue to benefit from consumption and growth recovery. Year-to-date, the Nikkei 225 Domestic Exposure 50 Index has outperformed both the Semiconductor Index and the Overseas Exposure 50, underscoring domestic plays’ resilience.
