At the beginning of August – just two months ago – the Japanese market became the center of attention. The sharp falls of the Tokyo stock market, with the Nikkei at the top, they dragged down the rest of the global indices and caused panic among investors and analysts. At least temporarily. Behind him accidentstock markets were able to recover (some strongly) and leave the bearish event behind them. And now, even if the waters returned to their channelthings have not gone back to the way they were before.
The best example is represented by the currency of the Japanese country. He yen It began to appreciate against the dollar in August. Indeed, the Japanese currency managed to appreciate by almost 4% against the US dollar during the three sessions during which the Asian stock market fell by 19% and reached its highest level since the summer of 2023 in mid-September at its intersection with the badge. Yankee. Today, this trend has changed.
Since September 16, the day the yen reached its highest level in 14 months, the Japanese currency has entered a phase downward spiral that even the election of the new Prime Minister (in favor of a less accommodating monetary policy) could not stop it during the last sessions. In just 15 days, the pair fell more than 4% with the session of October 2 as the most bearish in the price of the yen since June 2022.
This dynamic has favored the advancement of Nikkei, which managed to rebound by 8% in the last 15 sessions and that in the context of a weaker currency – which is favorable to businesses in a purely export economy – is able to take advantage of the potential of more than 14% that the market consensus has collected since Bloomberg boasts about the next twelve months.
Analysts say the Bank of Japan’s (BoJ) more dovish stance played a key role in the yen’s weakening in recent hours and boosted market optimism. The Japanese entity surprised everyone this week by emphasizing that the economy was not prepared for a further rise in interest rates. Something that served as a counterweight to the election of the new Japanese Prime Minister, Shigeru Ishiba, who had been perceived by the market as a detractor of Abenomicsthe economic policies promoted by Japanese Prime Minister Shinzo Abe, based on monetary expansion, fiscal stimulus and structural reforms.
“Their support for the normalization of monetary policy and the increase in corporate taxes could significantly affect the Japanese financial outlook,” underlines Mario Montagnani, senior investment strategist at Vontobel, who warns that these measures could affect the outlook for Japanese stocks and the yen. trade due to changes that may occur in interest rates, currency values and tax policies.
And an appreciation of the currency harms attractiveness to trade yen, a strategy in which investors borrow yen to invest in higher-yielding asset classes. “A stronger yen would reduce the profitability of this strategy, and traders could start to get rid of their short yen positions. We already had a sample of this last August. Finally, a stronger yen could hurt trading activities. “exports to which Japan is structurally linked.” explains the expert.
However, as Banco Sabadell points out, “the brand new prime minister, Ishiba”, saw recently forced to recognize that “he will maintain the economic policy of his predecessor Kishida” and this was taken with open arms by the Nikkei bulls and the yen bears.
Furthermore, “Japan’s dependence on exports to China means that any increase in demand in the Asian giant could have a significant impact on the Japanese economy,” said Bas Kooijman, CEO and manager of assets at DHF Capital SA, which underlines the importance of this situation. evolution of the Chinese economy in the economic future of Japan.
