Are Japanese stocks headed for a double bottom? JPMorgan weighs in

Investing.com-- Japanese stocks were nursing a steep loss over the past week, and saw little relief in recent sessions, raising concerns over a potential double bottom, although JPMorgan analysts said this was not their base case.

Japan’s Nikkei 225 and TOPIX indexes plummeted into a bear market in early-August following hawkish signals from the Bank of Japan. While they had recouped most of these losses later in the month, they faced renewed weakness in early-September, raising concerns over a potential double bottom scenario. 

A double bottom scenario is a technical pattern where the price of an asset drops sharply, rebounds, drops again, and then rebounds into a new upward trend. The pattern usually appears as a “W” shape on the price chart of an asset. 

JPM said such a pattern was not its “main scenario” for Japanese stocks. The brokerage cited improving trends in the Japanese economy, especially in increased wages, improved consumer spending and sustained corporate reforms.

JPM recommends buying on weakness in Japanese markets through the end of 2024, while watching for any spillover in U.S. market volatility and lower interest rates. 

The brokerage reiterated its overweight stance on Japanese markets. 

“In Japan, we are starting to see evidence of wage growth and recovery in consumer spending, marking the final chapter for overcoming deflation, and corporate reforms are also accelerating,” JPM analysts wrote in a recent note. 

The brokerage said recent weakness in stock markets was triggered chiefly by concerns over a U.S. election, and that markets had now swung too far towards fears of a recession. 

JPM said there were likely to be “buying opportunities” for Japanese stocks later in the year.