There was a public holiday on Monday in Japan, which doesn't celebrate Christmas. Instead, the nation did recognize Emperor Akihito's birthday on Dec. 23 by taking the next trading day off.
When markets resumed on Tuesday, the Nikkei 225 index promptly sold off 4.1%. The selling had little to do with Japan, and everything to do with stateside woes and fears about trade.
Still, it's been a savage month. It looks like this will be the worst December on record for Tokyo stocks. So what will drive performance for Asia's largest stock market, and the world's third-largest economy, in 2019?
Don't expect any joy until the spring. But the blossoming of the cherry trees should put the spring back in Tokyo investors' steps, too.
Temporarily, the squabbling between U.S. President Donald Trump and Federal Reserve Chairman Jay Powell has resulted in unexpected U.S. dollar weakness. That means a stronger yen, which has moved from ¥113 to ¥110 against the U.S. dollar in the last few days, a cause for pressure on the shares of Japan's huge exporters.
But this spring will bring an event last seen two centuries ago. This is the last birthday that Japan will celebrate for Akihito, born on Dec. 23, 1933, because he is due to abdicate on April 30. Crown Prince Naruhito will ascend to the Chrysanthemum Throne. Since the son's birthday falls on Feb. 23, Naruhito's first as emperor will be in 2020.
The April 30 date of transition has been selected to allow Akihito to count a round 30 years as emperor. He took the throne (I resist saying "power" since, like the British queen, the role is largely ceremonial) in January 1989 from his father, the war-time Emperor Hirohito.
The transition will be a celebration of Akihito's life, and the longest-running continuous monarchy in the world. There will be a definite feel-good mood that should lift markets, too.
Though highly unusual, it is not the first time the emperor has stepped down. The last to do so was Emperor Kokaku, whose bloodline began the branch of the family that currently rules. Kokaku in 1817 similarly stepped down for his son after 27 years as monarch, having overseen a transition from famine to reform.
Akihito's post-war reign has a name: Heisei, which means "achieving peace." There will be a new name for his son's time on the throne, though that has yet to be decided.
As Naruhito takes command of the throne, Japanese stocks should get a much-needed boost in the spring from another transition of power. Japan will hold a double dose of elections in July 2019, in a pattern seen only every 12 years. It's unusual to see elections for the Upper House, the House of Councillors, occurring at the same time as unified regional elections, but that's the case next year.
It's possible that Prime Minister Shinzo Abe may call for elections for the Lower House, or the House of Representatives, as well, creating maximum election buzz. Abe is also likely to call for as many stimulatory measures as possible in the election runup -- locals joke he only really pays a lot of attention to the economy when Japan is about to go to the polls.
Japanese stocks had been treading water since a dip in March, at the end of the financial year, before their recent plunge. They're now at levels last seen in September 2017, and apparently only know one direction -- down.
For December, the Nikkei is now down 14.3%, accounting for almost all of the 15.9% loss for the year so far. The Topix index, which tracks all stocks on the Tokyo exchange, is also down 14.1% in December, but is staring at a 21.2% drop for 2018.
The discrepancy shows that small- and mid-cap stocks have performed worse than blue chips. That's a situation likely to persist next year. So for investors in index funds, they should favor Nikkei-focused products rather than those tracking the Topix.
Fever-pitch preparations for the 2020 Olympics will mean there's plenty of positive activity around Tokyo. That excitement should continue to boost construction stocks, as well as the media industry.
A one-off event hardly makes or breaks a nation, of course. But there has been a void of Japan-specific news until, on Nov. 23, Osaka was selected as the host city for the World Expo 2025. That should boost construction again, as well as Osaka-focused companies in general.
The spring/summer stock reprieve will likely be temporary. In October, Abe is intent on raising the consumption tax in Japan from 8% to 10%, a move he has twice delayed. That will inevitably created considerable short-term pain, particularly for household spending.
There will likely be a runup in household spending before October. After the tax hike, housing developers, housing-equipment makers, electronics retailers and department stores would be the sectors to avoid, should that go ahead as expected.
Although there's no Christmas celebration in Japan, the New Year is a very big deal. Most people take a week off. Better, for now, for the Topix and Nikkei screens to be static. When they're back on, expect them to decline until the weather turns warm.