Near-term downward pressure looks inevitable, but serious
correction unlikely
1. The recent major earthquake is bound to exert downward pressure on Japanese
equities as a whole over the near term, in our view. Based on declines after the Kobe
earthquake, we expect the TOPIX and the Nikkei Average to decline and then rebound in
ranges around 850–900 and 9,500–10,000, respectively.
2. Although we expect this earthquake to provide further impetus to the correction in
Japanese equities that has been occurring since mid-February, we do not envision a
serious correction for the following reasons. First, industrial production only fell in the
immediate month following the Kobe earthquake. Second, the government is likely to
provide fiscal support to the regions affected. Third, we see little risk that the earthquake
will trigger a sharp rise in the value of the yen.
3. We expect the following sectors to perform relatively well as they are more likely to
benefit from reconstruction demand: construction, metal products (including bridges,
construction materials, housing equipment), glass & ceramics products.