[Tokyo 6th Reuters]–The correlation between the recent depreciation of the yen and Japanese stocks is not clear at this time. Even in the market, the merits and demerits of the depreciation of the yen against the Japanese economy are divided, and it is almost neutral as a material for stock prices. Looking at Japanese stocks as a whole, there is no sign of a “bad yen depreciation.” US stocks are highly correlated, and the time when the US dollar’s appreciation / yen depreciation stops as the US stocks fall sharply and the US interest rate hike is expected to recede is likely to be a dangerous time for Japanese stocks.
The depreciation of the yen against the dollar began to sharply begin in March. With rising inflation, the observation of an accelerated rise in US interest rates has intensified, and the difference in the direction of US-Japan monetary policy has become clear. Japan’s current account deficit (January) was also seen as a material, and the dollar / yen pair, which was around 115 yen, has depreciated by more than 15 yen in about two months.
During that time, Japanese stocks had a depreciation of the yen and a high stock price until the latter half of March, but since the beginning of April, the depreciation of the yen and the depreciation of stock prices have reversed the correlation. Since the dollar / yen pair exceeded 120 yen, the yen has been depreciating and stocks have been depreciating.
However, looking at the TS magnification of TOPIX divided by S & P500, the footsteps are rather rising. Although the level itself is still low, the performance of Japanese stocks in the United States has improved since April. TOPIX has also risen in comparison with MSCI’s ACWI index, which combines large-cap and medium-cap stocks in 23 developed and 23 emerging countries.
US stocks and world stocks are more relevant than Japanese stocks than the dollar / yen. “Japanese stocks are moving in tandem with market risk appetite or global business sentiment. The depreciation of the yen has different effects depending on the industry, but looking at Japanese stocks as a whole, it is working positively so far.” Shingo Ide, chief equity strategist at the Nikkei 225 Research Institute, points out.
It is not seen that Japanese investors are transferring funds to foreign stocks and bonds because they dislike the depreciation of the yen, which is the depreciation of currency values. In the domestic and foreign securities investment (Ministry of Finance) from March to April 23, foreign stock and fund investment by Japanese residents exceeded the disposal of about 1.3 trillion yen (net sales). Medium- to long-term bonds also exceeded the disposal of about 4 trillion yen.
However, domestic investors do not prefer Japanese stocks. In Japanese stock trading (TSE / Otori), which is the sum of cash and futures, the cumulative total from March to the third week of April shows that individual investors have net purchases of 137.4 billion yen.
Overseas investors have sold 314.3 billion yen in Japanese stocks during the same period, but sales are not particularly swelling. Looking only at April, it is a net purchase of 816.4 billion yen. With the dollar strengthening / yen depreciation progressing, the dollar-denominated Nikkei average has sunk to the lowest price since June 15, 2020, and it is thought that there is a possibility that “picking up the low price” has come out from the feeling of cheapness.
However, global investors are becoming more pessimistic about the global economy. According to the Bank of America’s April fund manager survey, the global economic outlook has fallen to record lows, “indicating room for future reductions in stock allocation,” the survey said. There is still a lot of room for turmoil.
The risk of decline for Japanese stocks increases when the yen stops depreciating, not while it is depreciating. The current driver of the strong dollar / weak yen is the interest rate differential between Japan and the United States. If stock prices fall, which may have a negative asset effect, the US interest rate hike is likely to recede and the yen to stop depreciating, but Japanese stocks, which are closely linked to US stocks, are also likely to fall sharply.
The Federal Open Market Committee (FOMC) on the 3rd and 4th decided to raise interest rates by 0.50 percentage points for the first time in 22 years. The market once moved to a decline in interest rates and a rise in stock prices, considering that the possibility of raising interest rates by 0.75 percentage points, which had been wary, had receded, but it reversed in the market on the 5th.
A statement was added to the statement: “The FOMC is very careful about inflation risk.” Powell said he was “extremely uncomfortable” about the impact of inflation, which is nearly three times the Fed’s target, on households, and a significant rate hike is expected at the June and July meetings. is. The risk of market turmoil caused by rising US interest rates remains high.
Can the Fed continue to raise interest rates while US stocks are firm, stop raising interest rates if they plunge, and bring the Fed to a soft landing? “It’s extremely unclear if such tricks can be done. Once stock prices start to fall, it often doesn’t stop,” said Toru Moriya, chief market economist at Sumitomo Mitsui Banking Corporation.
The Dow Jones Industrial Average has become more unstable since April, recording three drops of more than $ 1,000. Risk-off yen buying has completely disappeared, but risk-off Japanese stock selling is still “healthy.”
(Edited by Daiki Iga: Shiho Tanaka)
