EWJ completes its round trip to zero drawdown, and EWZ is the one still cracking

One analyst's qualitative review. Not backtested alpha. Not trade advice.

What I'm watching

EWJ $97.79, 1m +4.15%, DD 0.0%, 52w-pos 100.0%: full round trip from the Jul 30 low (DD -7.86%, 52w-pos 71.1%) through the Aug 2 revise (-4.72%, 82.6%) to a fresh 52-week high today.
DXY 99.98, trend tagged rising, but the level is still below the 100.974 print that accompanied Jul 30's "avoid" call on EWJ, and roughly flat versus the 99.80 read on Aug 2.
EWZ $33.86, 1m -6.02%, DD -18.09%, 52w-pos 50.7%: a fourth straight reading of deterioration since Jul 30's -14.19%.
EZA $68.33, 1m +7.69%, DD -14.43%: partial giveback from Aug 11's -12.67% read, still far better than Jul 30's -22.25%.
Policy rates unchanged across the panel: BoJ 0.84% (hiking), BoE 3.73% (on-hold), ECB-linked DE rate 2.00% (on-hold), BCB 14.39% (cutting), SARB 7.00% (hiking).

What changed / what matters

The Jul 30 entry flagged a break in the DXY-pass-through story for EWJ and set an explicit revise condition, drawdown narrowing back under -5%. Aug 2 caught that condition firing early. Today it is fully resolved: EWJ sits at DD 0.0%, 100% of its 52-week range, and DXY did not do the work, it is lower now than on Jul 30. That confirms the alternative read from two weeks ago, the drag was Korea-chip contagion bleeding into Japan's semiconductor-equipment names, not a dollar story, and that contagion has fully faded for Japan specifically. One caveat worth stating plainly: Japan's manufacturing PMI is still 48.5, sub-50, unchanged from Jul 30. The equity move is happening with no accompanying improvement in the underlying survey, which makes this look like a pure re-rating or flow rotation rather than a fundamentals confirmation. Chasing a name at its 52-week high on a contracting PMI deserves some caution even after a thesis this cleanly resolved.

EWZ is the mirror image. Jul 30 flagged the first drawdown widening in four entries as "a crack that deserves a downgrade to watch." That crack has not healed, it has widened again, from -14.19% to -18.09%, with BCB's cutting cycle and the 50.1 PMI both essentially unchanged. Four consecutive readings without a fundamental catalyst points to profit-taking against the earlier carry-rerating thesis rather than anything BCB or PMI-driven, which argues for treating this as a genuine downgrade rather than noise.

EZA's healing trend from Jul 30 remains intact on a two-week view but was not monotonic this week, DD widened slightly from the Aug 11 read. SARB is still hiking into a 45.8 PMI, so the improvement continues to run against, not with, the domestic rate cycle. GB stays the unresolved split flagged twice now: PMI still the panel's weakest at 38.7, unchanged since Jul 30, while EWU sits parked near its highs. No new evidence either way this week.

Candidate picks within this theme

EWJ (Japan) - upgrade to accumulate on price, but flag the PMI-price divergence as a real risk, not a green light to chase.
EWU (UK) - hold; still near highs on an unresolved PMI split, no fresh evidence this week.
EWG (Germany) - hold; DD -0.34%, 97.8% of range, PMI 43.3 still contractionary, same caveat as Japan at smaller scale.
EZA (South Africa) - hold/watch; healing trend intact but gave back ground this week, SARB still hiking.
EWZ (Brazil) - downgrade to avoid; fourth straight drawdown widening with no change in the cutting cycle or PMI to explain it.

What I'd revise if I saw

Japan's manufacturing PMI breaking back above 50 would convert this week's move from a hollow re-rating into a genuine fundamentals confirmation worth adding to on strength rather than treating with caution.

Cross-references

Previous entry on this theme: docs/thinking/2026-07-30-fx-policy-dxy-stalls-at-the-gate-ewj-thesis-splits.md
Revise-condition confirmation: docs/thinking/2026-08-02-sunday-catchup-ewj-revise-fires-rotation-gap.md
EZA healing note: docs/thinking/2026-08-11-commodities-silver-reverses-ech-catches-the-ewa-bid.md
Country macro data: /api/country/JP, /api/country/GB, /api/country/DE, /api/country/BR, /api/country/ZA
Regime/DXY context: /api/regime

What I'm watching

EWJ $97.79, 1m +4.15%, DD 0.0%, 52w-pos 100.0%: full round trip from the Jul 30 low (DD -7.86%, 52w-pos 71.1%) through the Aug 2 revise (-4.72%, 82.6%) to a fresh 52-week high today.

DXY 99.98, trend tagged rising, but the level is still below the 100.974 print that accompanied Jul 30's "avoid" call on EWJ, and roughly flat versus the 99.80 read on Aug 2.

EWZ $33.86, 1m -6.02%, DD -18.09%, 52w-pos 50.7%: a fourth straight reading of deterioration since Jul 30's -14.19%.

EZA $68.33, 1m +7.69%, DD -14.43%: partial giveback from Aug 11's -12.67% read, still far better than Jul 30's -22.25%.

Policy rates unchanged across the panel: BoJ 0.84% (hiking), BoE 3.73% (on-hold), ECB-linked DE rate 2.00% (on-hold), BCB 14.39% (cutting), SARB 7.00% (hiking).

What changed / what matters

Candidate picks within this theme

EWJ (Japan) - upgrade to accumulate on price, but flag the PMI-price divergence as a real risk, not a green light to chase.

EWU (UK) - hold; still near highs on an unresolved PMI split, no fresh evidence this week.

EWG (Germany) - hold; DD -0.34%, 97.8% of range, PMI 43.3 still contractionary, same caveat as Japan at smaller scale.

EZA (South Africa) - hold/watch; healing trend intact but gave back ground this week, SARB still hiking.

EWZ (Brazil) - downgrade to avoid; fourth straight drawdown widening with no change in the cutting cycle or PMI to explain it.

Cross-references

Previous entry on this theme: docs/thinking/2026-07-30-fx-policy-dxy-stalls-at-the-gate-ewj-thesis-splits.md

Revise-condition confirmation: docs/thinking/2026-08-02-sunday-catchup-ewj-revise-fires-rotation-gap.md

EZA healing note: docs/thinking/2026-08-11-commodities-silver-reverses-ech-catches-the-ewa-bid.md

Country macro data: /api/country/JP, /api/country/GB, /api/country/DE, /api/country/BR, /api/country/ZA

Regime/DXY context: /api/regime