Yen’s Surge: Impact on Japanese Markets

The Yen surged to a three-month peak against the Dollar on November 7th, strengthening by 1.9% to reach ¥144.55, its highest level since late August. However, this uptrend reflects a cumulative decline of 11% in the yen’s value since January 2023. This devaluation has contributed to a remarkable performance in Japanese stocks this year. Notably, the iShares MSCI Japan ETF, which is not currency-hedged, has yielded over 14% since the beginning of the year.

Despite the Yen’s recent rise, the iShares MSCI Japan ETF still saw a 7.15% increase in one month, indicating that many other factors are influencing Japanese equities’ performance. Equities received a significant boost earlier in the year when Warren Buffett, CEO of Berkshire Hathaway, announced an increase in his stakes in five major Japanese trading companies to 7.4%. This move made Japanese stocks more attractive to global investors.

Macro investors have shown great interest in betting on higher Japanese rates, making it one of the year’s most popular trades. The positive sentiment around Japanese equities was further reinforced by comments from the Bank of Japan (BoJ) deputy governor, signalling potential gradual ‘normalisation’ of monetary policy in Japan in the coming year. However, some analysts caution against early expectations of an interest rate hike in December or January, emphasising the need for a cautious approach.

The above is for educational purposes only and does not constitute advice. You should always contact your advisor for a personal consultation.

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