Chinese stocks continued their strong run on Monday, the feel-good factor from the ongoing U.S.-China trade talks continuing. The CSI 300 index of mainland stock rose 2.6% on decent economic data but mostly sustained momentum trading as the negotiations shift from Beijing to Washington this week.
China's stock markets are now up by one-third for the first quarter of the year. How different a story it is, then, in Japan. The Nikkei 225 is up a muted 7.5% year to date, and in the last 18 months investors in Japan have made precisely... no money. The index's level now is identical to that in October 2017.
So it was no April fool's joke when the Tankan survey of business sentiment from the Bank of Japan showed the mood has soured. Big manufacturers posted a reading of 12, meaning there are 12% more optimists who say conditions are good than there are pessimists who say conditions are poor. That's the worst reading since 2016, down from 19 in the prior survey three months before.
Part of the reason sentiment is increasingly poor in Japan, though, is a spillover from fears about the U.S.-China trade war. Japanese industry is increasingly intricately woven into Chinese manufacturing. Trump has also threatened Japan over the level of its imports of U.S. automobiles and agricultural produce - rich, since Trump's first move in office was to pull out of the Trans-Pacific Partnership that would have removed tariffs between the world's No. 1 and 3 economies.
Will Japanese stock get a lift now that the China bulls are running? The optimism over a likely Sino-American trade truce should also ease furrowed brows in Tokyo towers. At the moment, the forecast is the for the Tankan to sink to 8 come time for the next quarterly installment. To my mind, there's room for some upside.
It's been a good strategy to buy on any Nikkei dips so far in 2019. Any downturn has quickly been recovered. The iShares MSCI Japan ETF EWJ tracks a broader index but has similar 7.2% gains year to date.
I've mentioned before that it's an excellent idea to trawl through the members of the JPX-Nikkei 400 index for investment targets. The 400 companies that make up the index have been screened for profitability, liquidity and good governance, making them the best of the listings in Tokyo's First Section.
The iShares JPX-Nikkei 400 ETF JPXN tracks that index. It has indeed marginally outperformed the broader universe of Japanese listings, up 8.3% in 2019.
There was some light amid the gloom in Japan on Monday, and a good reason Japanese stocks might get a boost in the spring. We'll have a whole new era in Japan.
The government declared that the next dynastical step of the Chrysanthemum Throne will be known as the "Reiwa" era, when Emperor Naruhito ascends on May 1.
Every emperor has his own era. Naruhito's father will take the unusual but not unprecedented step of abdicating on April 30, feeling that after 31 years on the throne and at the age of 85 that it's time for his son to rejuvenate the dynasty.
The character for "rei" means "auspicious," while "wa" means "peace" or "harmony.
Although the naming of a reign may seem obscure to foreigners, it's of great significance in Japan since people often place broader historical and major family events in the context of the imperial calendar. The turning of the page to the year of Reiwa 1 will also necessitate a change to all official paperwork.
It's the first time that the term has been taken from Japanese literature, with all previous eras taking names from phrases in Chinese classics. The reigns take their form in kanji, the Chinese characters adopted into the Japanese language, when at the time Japanese had no written script.
There are a few "rules" for naming an era. The name should comprise only two characters, and be easy both to read and write. It also should not include a proper name, or the first character from any other recent era.
A panel of experts on classical Chinese and Japanese literature first nominate potential names for the era, which this time went to a panel of nine outside experts, including the novelist Mariko Hayashi and the Nobel Prize-winning stem-cell scientist Shinya Yamanaka. Their choice was then approved by the government's cabinet.
Akihito's time on the throne is known as the Heisei era. Akihito became emperor in 1989 after his father, Hirohito, died of cancer. Since Hirohito sat on the throne during World War II, his son's rule was called Heisei, or "Achieving Peace."
It's well regarded for having seen a time of political calm. Japan has even ended the revolving door system where it changed prime ministers virtually every six months, incumbent Shinzo Abe becoming the longest-serving prime minister since the war.
While Japan has been conflict free in those three decades, many Japanese people point to the large number of natural disasters that have occurred during the Heisei period. There was the giant tsunami in March 2011 that killed around 15,000 people and led to the nation's largest nuclear disaster. The Great Hanshin Earthquake in 1995 destroyed much of the city of Kobe, and killed 6,434 people. Last year, Typhoon Jebi hit as the largest storm since 1993, causing 480,000 insurance claims.
So Japanese people are looking forward with optimism to the Reiwa age. The characters come from a poem about plum blossoms in Manyoshu, the oldest existing compilation of poetry in Japanese.
Since Prime Minister Abe is staunchly nationalist, it's a sign of the times that this new era's name comes pointedly from Japanese, not Chinese, literature. The character "rei" can also mean "order" or "command," besides coming from a poem about flowers. So some commentators have noted an authoritarian subtext.
Let's take things at face value for now. This spring, there will be a feel-good factor nationwide in Japan. Should that play into any sense of optimism imbued by the relaxation of tension over trade globally, we could see Japan's exporters get a bounce in their step, and better gains from the underperforming Nikkei and JPX-Nikkei 400 indexes.