The Japanese stock market continues to strengthen, recording its highest level in 33 years, leading to an increase in individual investors who invest in Japanese stocks. Especially recently, there has been a rapid increase in people investing in ETFs that can provide the same effect as investing in US Treasury bond index funds listed in Japan or investing in yen in the domestic market, aiming for the strength of the yen.
According to the Korea Securities Depository's SaveRo data on the 25th, domestic investors have been buying the "iShares US Treasury 20+ Year Bond ETF" in the Japanese stock market the most in the past month (April 24th to May 24th). The net purchase amount was $6.79 million. This ETF is a product that invests in US long-term bonds with yen. Although investors can trade overseas stocks in dollars in Korea, they chose to purchase them in the Japanese market.
In Japan, investors can buy them in yen, expecting to profit from future yen strength. The term "yen-hedged" in the product name means that the performance of the product is not affected by the USD/JPY exchange rate.
In addition to US Treasury ETFs, they also bought a "Global X Japan Semiconductor ETF," which invests in Japanese semiconductor equipment and material companies, worth $4.59 million. They also made significant purchases of companies such as Asics ($1.97 million), Japan Computer (Nidec, $1.72 million), Celcis ($1.52 million), and Mitsubishi ($1.36 million). Individuals are also buying Japanese-related ETFs listed domestically. The "TIGER Japan Yen Futures ETF," which bets only on the yen's rebound without being affected by stock market fluctuations, had a net purchase of 6.9 billion won. The "TIGER Japan Nikkei 225 ETF," which can take advantage of exchange rate differences when the yen strengthens, saw an inflow of 2.3 billion won.
With the yen reaching its lowest level of around 139 yen per dollar in the New York foreign exchange market on the 24th, investors who consider it a low point have increased. The yen rose to the 127 yen range at the beginning of this year due to expectations of a change in the Bank of Japan's monetary policy, but it weakened again when Bank of Japan Governor Ueda Kazuo announced that the accommodative financial policy stance would be maintained for the time being.
In the securities industry, there is growing anticipation that the value of the yen will rebound due to the expected end of US interest rate hikes and changes in Japan's monetary policy. Choi Bo-won, a researcher at Korea Investment & Securities, predicted that the yen/dollar exchange rate would decline when Governor Ueda normalizes the financial policy and the US interest rate hike cycle ends. Due to the influence of accommodative monetary policy, the yen has been weak, but it can turn bullish in the second half of the year due to the narrowing of the interest rate gap between the US and Japan.
Pyun Deuk-hyun, a NH WM Masters specialist, advised, "If investors who buy long-term government bonds expect a further widening of the US-Japan interest rate gap, they should also consider yen investments." In fact, when the Bank of Japan announced an expansion of the target range for 10-year government bond yields, which effectively serves as Japan's benchmark interest rate, from 0.25% to 0.5% in December last year, the yen also showed strength at the beginning of the year. It is also dominant that the Bank of Japan will revise its accommodative monetary policy as the Japanese consumer price index (CPI) surpasses the bank's inflation target.
On the other hand, it is analyzed that the yen weakening had a significant impact as the Nikkei 225 Index rose 19% this year, recording the highest performance in 33 years for the Japanese stock market. In other words, there is a cautionary note that simply investing in the Japanese market based on stock price increases may not be advisable, as the influence of yen depreciation is significant. According to Adam Cole, Chief Currency Strategist at RBC Capital Markets, the excess returns of Japanese stocks are more closely related to the yen's depreciation than to Japan's policies or economic performance.
Cole presented a comparison between the Nikkei 225 Index's rate of increase and the "MSCI World Index," which represents the performance of large-cap stocks in 23 developed countries. "In the past 30 years, the Japanese stock market has performed moderately rather than achieving the highest growth," Cole explained. Many investors point to recent rises in Japanese stocks due to corporate governance reforms, strengthened shareholder returns, low valuations, and volatility, but the explanatory power of exchange rate effects is higher.
It was also added that the performance of Japanese stocks has been closely linked to the value of the yen compared to the dollar since last year. Cole, the researcher, warned that if this assumption is correct (that the yen will maintain a weak trend for the time being), there is a possibility that Japanese stocks will continue to show good performance, but investors should consider that stock markets will not maintain low levels due to favorable conditions for a long time.
According to MarketWatch on the 24th, Adam Cole, Senior Foreign Exchange Strategist at RBC Capital Markets, argued that the excess returns of Japanese stocks are due to the yen weakening further, rather than being related to Japan's internal policies or economic performance.
Cole provided evidence by comparing the rate of increase of the Nikkei 225 Index not with absolute figures but with the "MSCI World Index." This index represents the performance of large-cap stocks in 23 developed countries. Cole explained, "In the past 30 years, the Japanese stock market has performed moderately rather than achieving the highest growth." He emphasized that although many investors point to recent rises in Japanese stocks due to corporate governance reforms, strengthened shareholder returns, low valuations, and volatility, the explanatory power of exchange rate effects is higher.
It was also mentioned that since last year, the performance of Japanese stocks has been closely correlated with the value of the yen against the dollar. Cole, the researcher, stated, "If this assumption is correct (that the yen will maintain a weak trend for the time being), there is a possibility that Japanese stocks will continue to show good performance, but investors should consider that stock markets will not maintain low levels due to favorable conditions for a long time."
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