Trigger warnings - Lessons from the July-August 2024 sell-off

Research evidence excerpt

Trigger warnings - Lessons from the July-August 2024 sell-off

Goldman Sachs Japan Portfolio Strategy

Executive summary - what are the biggest near-term risks for the Japanese equities market?

We remain constructive on the mid-to-long-term outlook for the Japanese equities

market, and have recently raised our 3M, 6M and 12M TOPIX targets (Japan Weekly

Kickstart: Revising 12M TOPIX target to 4500 to reflect FX assumption changes, 24 July

2026). Near-term seasonality suggests that the market could remain volatile over the

summer months, but we still expect TOPIX to gradually move higher into the end of the

year.

Our view is that a combination of strong earnings momentum, meaningful exposure to

the global AI-growth thematic, a structurally weak yen, and a continued top down focus

on index-level ROE improvements via Corporate Governance reform measures, make

Japan an extremely attractive equities market.

However, persistent yen weakness and speculation about various government plans to

strengthen the Japanese currency (LINK) have re-focused investor attention on the risks

of another July-August 2024-style sell-off. During this correction, TOPIX experienced a

peak-to-trough fall from 11 July - 5 August 2024, triggered in part by USDJPY’s rapid

move from ¥162 to ¥143 during this period (Exhibit 1).

Exhibit 1: USDJPY and US/JP 2Y yield spreads in 2024 Exhibit 2: Top five and Bottom five TOPIX 17 sector

performance during market correction

USDJPY (lhs) US2Y JP2Y yield spread (rhs) Btm 5 Sectors Top 5 TOPIX

170 July 11: Weak US July 11, 12: Yen 500 105

CPI intervention

475 100

June 31: BOJ

450 95 announces policy

160 rate hike

155 400

August 2: Weak 80

US payroll data 350

325 75

140 300 70

Jan 24 Apr 24 Jul 24 Oct 24 Jan 25 Jul 11 Jul 18 Jul 25 Aug 01