Daishin Securities Warns of Further Yen Weakness: "Concerns May Hold Back Japanese Stocks in November"

Daishin Securities has recently assessed that growing concerns over the weak yen in the Japanese financial market could become a factor holding back the Japanese stock market in November.

Moon Namjoong, a researcher at Daishin Securities, stated in the "Japan Market Radar Weekly" report on November 10 that "the Japanese stock market has started to become wary of the weak yen." While yen depreciation is positive for Japanese exporters by improving their profitability, it also has negative aspects, such as reduced domestic profits and shrinking consumption, representing two sides of the same coin.

Kazuo Ueda, Governor of the Bank of Japan (BOJ), attended a press conference after the Monetary Policy Meeting held on October 30, the first since the inauguration of the Sanae Takaichi government, where a decision was made to keep interest rates unchanged, and responded to reporters' questions. Photo by Reuters Yonhap News

Moon pointed out, "The pronounced yen depreciation following the inauguration of the Takaichi cabinet played a positive role in pushing the Japanese stock market to historic highs at the end of October." However, he added, "If the yen continues to weaken beyond 155 yen per dollar, concerns that this will suppress further gains in the Japanese stock market are likely to intensify."

He cited an example: "In April 2024, the yen was also devalued to the 155 yen per dollar range. Until then, the TOPIX index had outperformed the U.S. stock market (S&P 500) in terms of returns, but once the yen fell past the 155 level, Japanese stock market returns began to lag behind those of the United States." At that time, Japanese monetary authorities intervened in the foreign exchange market by selling dollars on four separate occasions.

Moon further noted, "If the yen again moves beyond the 155 yen per dollar range in November, the likelihood of intervention in the foreign exchange market by the Japanese government and the Bank of Japan increases." He predicted that such yen depreciation would highlight negative side effects for the Japanese economy, such as on real wages, and would also have an adverse impact on the Japanese stock market.

He explained, "Nominal wages have risen for nine consecutive months, but they are still not keeping pace with inflation." He also pointed out, "Rapid yen depreciation may lead the market to expect an earlier interest rate hike by the Bank of Japan." He added, "If the yen weakens excessively in November, the negative effects of yen depreciation are likely to outweigh the positives for the stock market."