UBS Wealth Management: Buying Japanese stocks now is like picking up a knife by the blade. The recent surge in Japanese stocks was due to the weak yen, not the strength of the companies.
On Wednesday, May 5, Japan's stock market fell sharply again. The Nikkei 225 and the TOPIX triggered circuit breakers, suspending trading for a while, and Japan's stock market entered a technical bear market. Recently, Kelvin Tay, regional investment director of UBS Wealth Management, said that the only reason for the sharp rise of the Japanese stock market in the past two years was that the yen was very cheap, so it is not wise to enter the Japanese stock market now.
"Once the situation reverses, you must exit, so I think they have all exited now." Kelvin Tay pointed out that the yen is an indicator of whether the Japanese stock market is good or not, and the Japanese stock market will fall with the yen, and "unfortunately, the Japanese stock market still faces greater pressure."
He admitted that part of the rise of the Japanese stock market was related to the reform of the Tokyo Stock Exchange, but the main driving force was still the yen. However, one of the reasons why the yen is so important to the Japanese market is that it is related to the yen carry trade, when the yen is weak and the interest rate in Japan is zero or negative, investors will borrow yen and invest in assets with higher yields.
With the Fed's rate cut and the yen's interest rate hike, the interest rate gap between the US and Japan is narrowing, and the appeal of the carry trade is declining, so the yen will rise further. Kelvin Tay expects the yen to rise to 143 against the dollar, but if Japanese insurance companies and pension funds start to buy back their shares, the yen may rise to 135.