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Japan's Nikkei index dipped 0.98% to 38,193.05 as investors anxiously wait for potential shifts from Donald Trump's upcoming inauguration, with a cautious eye toward a weekly slip of 1.58%.

What does this mean?

As President-elect Donald Trump prepares for his inauguration, investors are showing caution, expecting market volatility once his inaugural speech is delivered. This leads to risk aversion, according to Sumitomo Mitsui Trust Asset Management. A factor in this is the yen's 1.5% rise against the US dollar, its strongest since November 2024, driven by anticipated rate hikes from the Bank of Japan, potentially squeezing exporters' overseas profits. Notably, Advantest and Fast Retailing suffered, and Nintendo's 5.75% drop after announcing the Switch 2 contributed to the Topix index's 1% drop to 2,661.47. Banks like Mitsubishi UFJ and Sumitomo Mitsui Financial also faced declines. Amid the downturn, Daikin Industries rose 1.32%, bringing some positivity to the Nikkei index.

Investors carefully tread the rocky terrain of Trump's pending inauguration, leading to widespread risk aversion. The yen's climb against the dollar heightens challenges for exporters, putting downward pressure on major indexes. As this unfolds, markets should brace for potential volatility and look out for sectors that might present risks and opportunities with upcoming policy changes.

The bigger picture: Economic tides influenced by politics.

With anxiety surrounding political transitions and economic policy ramifications, global markets are keenly observing the US-Japan economic interplay. The Bank of Japan's monetary policy stance, amidst a strengthening yen, plays a crucial role in shaping Japan's economic prospects. In this uncertain environment, companies and investors need to remain vigilant for long-term strategic adjustments to navigate the evolving economic landscape.