Japan Equity Strategy: Japan-US coordinated forex intervention and the impact on Japanese equities: Reversal of yen depreciation positive for share prices

Research evidence excerpt

Japan Equity Strategy: Japan-US coordinated forex intervention and the impact on Japanese equities: Reversal of yen depreciation positive for share prices

ernalDemand,DomesticDemand,andFinancialsSectors).

Impact of reversal of yen weakness on share prices positive

rather than negative

The Japanese stock market has been weighed down in the past few days by concerns about

increased forex volatility since reports of coordinated US-Japan intervention (including in

the July 31 Nikkei). However, we believe the reversal of yen weakness from the ¥164/$ level

will not be negative for the stock market, but rather have a positive impact. The current level

of ¥157/$ is likely to be acceptable from the perspective of the Japanese authorities,

considering the average of ¥150/$ for FY2025 and the assumption of the average of ¥152/$

for FY2026 guidance, which we see as somewhat conservatively biased (Figure 5CorporateUSDJPYguidancebysector). The focus

is now on the extent to which the current exchange rate can be maintained by the effects of

forex intervention and other policies, such as an acceleration in the BoJ interest rate hikes and

the shift in GPIF asset management.

Our FX Research Team has not changed its outlook for the USDJPY at year-end (August 3

report by the FX Research Team), partly because of developments on the US side. However,

if the effect on the exchange rate continues as noted above, Japanese stocks should be affected

positively.

As mentioned above, in addition to the shift in GPIF asset management (with the portfolio

as of end-June scheduled to be announced on August 7, Figure 6GPIFactualportfolioalocations(endofMarch2026)), the BoJ is likely to come

under increasing pressure to accelerate interest rate hikes. Even if the rate hikes are