To judge by the action in some foreign markets, Donald Trump’s election is pricing in economic winter. Take the KOSPI as an example. After touching 2,896 in July, the index of South Korean stocks has slumped to 2,469 in a series of lower highs and lower lows. The export-heavy economy is freaked that a 20% tariff is coming in addition to the unknown quantity of what Trump may or may not do if Kim Jong Un starts saber rattling.

China’s Shanghai Composite has a very different chart. It was priced for dead a few months ago but then it absolutely surged after the government slewed a ton of reform announcements on the market. The index went from 2,704 in mid-September to 3,489 in the first week of October. But since then, the action has been sideways, with Trump’s hardline stance being the key cloud over that market. Things have settled in the low-3,300s.

Japan is a bit of a different situation, but the vibe rhymes with its neighbors. The Nikkei 225 saw its best action this summer, when the buzz around its reform initiatives sent the index to 42,426. However, this summer’s sudden and rapid unwinding of the yen carry trade sent it tumbling below 35,000 in a matter of days, though it has recovered to 38,642 as we write. That leaves the Nikkei around levels seen in February.

Japan is in a little bit of a pickle with Trump because former PM Shinzo Abe was a close friend “Number 47” back when he was the 45th president. It will be hard for the current PM, Shigeru Ishiba, or any future PM to match that relationship. However, the reality is that Trump’s America First trade policy focuses on China and Mexico as key targets, with other major trade partners such as Canada, Germany and Japan receiving less attention.

But Japan’s stock market can’t blame Trump forever. Its corporate governance reform push must continue apace.

We have spilled a lot of ink on the Tokyo Stock Exchange’s “Action to Implement Management that is Conscious of Cost of Capital and Stock Price.” That mouthful essentially told listed companies that they need to put together action plans to show how they intend to boost profitability and pull their stock’s valuation out of the basement, should that be the case with any given company.

That initiative couldn’t come soon enough. The country’s return on equity (ROE) stood at 9% at the close of Q3, or just half the 18% ROE registered by the S&P 500. Though the country’s forward P/E multiple of 12.5 provides a sharp discount to the 22.6 multiple accorded US stocks, the profitability gap is embarrassing.

One catalyst of many would be an open embrace of acquisition activity, friendly or hostile. Reuters reports that Carlyle and Warburg Pincus are among “a host of global investment firms planning to beef up headcount in Japan as deals here surge.” That sounds good to us. That continues a trend that has persisted since the end of the Global Financial Crisis. According to JP Morgan, inbound M&A grew at a 7.5% annual clip from 2010-2023. It goes the other way too; Japanese buyers are using cash hoards to pick up overseas targets. A good example is in US homebuilding, a fragmented market that has seen a ton of Japanese make purchases this year.

A Trump-related concept that we don’t hear discussed much is a follow-the-leader idea on the regulatory side. The concept entails a vision of Trump clearing the regulatory path, enabling deals to flourish. Japan would have to then reassess its own regulatory regime to stay competitive with the US. It’s a scenario that is worth gaming out.