"Recommendation of Stocks Benefiting from Yen Appreciation or US-Japan Policies When Investing in Japan"

Caution Needed When Increasing Aggressive Exposure

As Japan's representative index shows high volatility, advice has emerged to focus on companies with strong fundamentals or those benefiting from US and Japan policies, despite the yen's appreciation.

On the 19th, Bo-won Choi, a researcher at Korea Investment & Securities, stated in a report, "Despite the decline in the yen-dollar exchange rate, we prefer companies with high expectations for fundamental improvement and those benefiting from increased global demand amid policy changes in Japan." He added, "These include beneficiaries of yen appreciation (such as food and beverage companies), beneficiaries of policy interest rates (such as banks and insurance companies), and equipment and infrastructure stocks."

He viewed that in the currently volatile Japanese stock market, a defensive approach is necessary rather than aggressively increasing exposure. Researcher Choi said, "Leading Japanese companies announced better-than-expected results for April to June, and despite intensified pressure from yen appreciation, the 12-month forward (12MF) earnings per share (EPS) improved. The valuation burden of the representative index is also limited." He noted, "However, in the short term, as events affecting US and Japanese government bond yields, exchange rates, and the pace of global economic recovery are scheduled for August, September, and November, a defensive approach is needed rather than aggressive exposure increases."

After reviewing Japanese corporate earnings and the macro environment following the July Bank of Japan (BOJ) meeting, he judged that Japan's macroeconomic and corporate fundamentals are better than concerns suggested, and valuation burdens remain low. This is because the April to June Japanese corporate earnings, which attracted market attention, were better than expected, and economic indicators such as the Japanese Consumer Price Index (CPI) and second-quarter Gross Domestic Product (GDP) also showed positive trends. In fact, the Japanese CPI inflation rate exceeds the BOJ's 2% target, and the second-quarter GDP (flash estimate) turned to growth for the first time in two quarters, supported by personal consumption. Tankan survey indicators also improved.

Researcher Choi analyzed, "The most frequently raised issue after the BOJ's July meeting was whether Japan could withstand policy changes." He added, "Following Japan, the US also released indicators that eased recession concerns, which contributed to the inflow of rebound buying."

Concerns about earthquakes, which had dampened investor sentiment, have also eased. Researcher Choi said, "In early August, concerns about the Nankai Earthquake spread, but the Japanese government lifted the temporary earthquake advisory." He emphasized, "Rather than considering only the earthquake impact, it is necessary to consider domestic and international variables such as the political environments and central bank policies of both the US and Japan."