Japan
$Yen No Mountain High Enough?
One casualty of the U.S. market’s hawkish turn is the Japanese Yen. It certainly grabbed its share of headlines, yet, when viewing the selloff in historical perspective, this year’s uptick looks entirely inconsequential. Additionally, when considering the Yen through the lens of other Asian currencies, its outsized weakness versus the dollar essentially disappears. Dollar strength is the real driver and it has pummeled Asian currencies across the board.
First BoJ Rate Hike In 17 Years—Not So Virtuous After All
To gauge how much faith we should have in this “virtuous” cycle, we examine the macro context in terms of the business cycle, the Yen, interest rates, and inflation. Ultimately, inflation holds the key to bond yields, as the main difference between pre- and post-1990 rate hikes boils down to inflation—which is also the key determinant of how far the BoJ can go in this tightening cycle.
New Cycle High In U.S. 10-Year Yield
The 10-year yield made a new cycle high just before the Jackson Hole meeting. That is significant, as it not only broke the lower-high-lower-low pattern since last October, but also rejected the hypothesis, “we have seen the cycle high in interest rates,” which was the consensus at the start of 2023.
Land Of The Rising Stock
After years of wandering in the wilderness, Japanese stocks are leading the world’s developed markets higher in what has been a robust opening half of the year. The table shows Japan leading the world’s ten largest developed markets (as measured by the MSCI family of international indexes) with a 24% local currency return through June, easily outpacing the pack. Even as the MSCI USA index gained 17% by successfully “fighting the Fed” this year, Japan surged another 7% beyond that outstanding result. We were curious to understand the nature of Japan’s spectacular run in 2023, looking to identify the drivers of this strong and relatively quick jump higher.
Research Preview: What’s Up? Japan!
After being ignored for a generation, Japanese stocks are roaring in 2023. The Nikkei puts the S&P 500’s 16.9% YTD gain to shame with its +28.7% return. With developed international equities (ex-Japan) up a paltry 9.5%, diversification from expensive U.S. stocks cannot fully explain Japan’s surge.
A Storied Bubble’s Pearl Anniversary
The decade of the teens has given way to the decade of the twenties and “year in review” retrospectives are in the books, but as the calendar’s last digit rolls from 9 to 0 we consider one more anniversary worth remembering.
Policies Trump Politics
We find ourselves in the twilight period where the impact of a rate hike might be waning, while the potential election-year impact might be gaining more influence.
Can The EM Problem Spread To DM? Yes, If It Gets Bad Enough
The current EM weakness is not yet a full-blown crisis but, if it does become one, it will drag down developed economies too.
Data Dependency—September Taper Still Likely
More upside surprises are still likely and, despite the disappointing jobs report, the overall economic picture still supports a September taper. The improving economic picture is not just happening within the U.S., but in other major countries. We still believe the upside for the U.S. 10-year is limited.
The Weakening Yen — Too Far Too Fast
We are highly skeptical “Abenomics” can produce different results this time.
QE3 Is Ill-timed And Should’ve Been Saved For A Greater Risk Event
What is the Fed going to do if another risk event hits and the S&P goes down 15-20%? Pray?
It’s The Economy, Stupid
U.S. likely averted worst-case scenario of default, but credit rating downgrade is still likely. Main impact of downgrade is not the increase in interest rates itself, but rather the liquidity risk in all markets that involve treasury securities as collateral.
The Impact Of Quantitative Easing On Style Factors
Chun Wang examines QE I & II in Japan, along with the initial QE in the U.S., to see how various quantitative factors have reacted in the past. While some factors may prove effective, the main difference between these past QE experience and the latest round is the macro conditions of the market.
Update On Japan...Holding Our Positions, But Watching Closely
Recent market action appears to be indicating that cyclical forces have, for the time being, put Japan’s stock market recovery on hold.
View From The North Country
Even before Major Trend Index improved to Neutral, Leuthold was getting more bullish. Also, Is the Sun Rising or is it Setting on Japan?
Update On Japanese Stock Market...Has Our Bullish Outlook Changed?
Notwithstanding the market action in the most recent month, in the longer term we suspect that the Japanese stock market might be less vulnerable than other regions and countries of the world (including the U.S.).
Initiated A Position In Japanese Equities
Used market weakness in Tokyo to begin building position in Japanese equities.
Turning Japanese? A Look At The Rally In Japan Shares And How To Play The Turnaround
A look at the rally in Japan shares, and how to potentially play a turnaround.
Japanese ADRs...Rising Suns
A brief recap of our reasons for a bullish outlook on Japan’s stock market.
Japanese ADRs...Update
A brief recap of our reasons for a bullish outlook on Japan’s stock market.
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March 2026 Issue
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