Goldman Sees Yen in Sweet Spot for Global Buyers of Japan Stocks

The Japanese stock market has been on a rollercoaster ride in recent years, with foreign investors playing a significant role in its performance. Goldman Sachs Research has recently highlighted an interesting dynamic: the yen's appreciation could be a sweet spot for global buyers of Japanese stocks. Let's delve into this phenomenon and explore how investors can capitalize on this opportunity.

The yen's appreciation negatively impacts Japanese exporters' profitability and stock performance. A stronger yen increases production costs and reduces competitiveness in global markets. Companies like Toyota, Sony, and Honda, with significant international sales, are most affected. According to Goldman Sachs, a 10% appreciation in the yen can lead to a 5% decline in earnings for these companies. However, a stronger yen also makes Japanese stocks more attractive to foreign investors, as they can buy more shares with the same amount of foreign currency. This creates a sweet spot for global buyers of Japanese stocks, as they can benefit from both currency appreciation and potential stock price gains.



Goldman Sachs Research strategists Bruce Kirk and Kazunori Tatebe expect foreigners and corporations to remain net buyers of Japanese stocks in 2024, driven by the new Nippon Individual Savings Account (NISA) and improved corporate governance. The stronger yen, while hurting exporters, benefits domestic demand-oriented sectors. These include food, transportation, and logistics, as well as pharmaceuticals. Investors can capitalize on this by increasing exposure to these sectors, which are less sensitive to currency fluctuations and more driven by domestic consumption.



The new NISA, starting in January 2024, is expected to encourage individual investors to enter the stock market, further boosting domestic demand. This, coupled with the yen's appreciation, creates an attractive environment for foreign investors looking to buy Japanese stocks at relatively lower prices. Value investors, who focus on stable, predictable growth, may find this an attractive entry point. Additionally, foreign investors with a long-term horizon, such as pension funds and sovereign wealth funds, could benefit from a stronger yen, as it may lead to higher returns over time.

In conclusion, the yen's appreciation presents an opportunity for global buyers of Japanese stocks. While it negatively impacts exporters, it makes Japanese stocks more affordable for foreign investors. By focusing on domestic demand-oriented sectors and taking a long-term perspective, investors can capitalize on this sweet spot and generate attractive returns. As always, it's essential to conduct thorough research and consider your risk tolerance before making any investment decisions.