Nov 17, 2019 (Nikkei) - Japan is one of the few countries where a weaker currency is good for the stock market, but a closer look reveals the long-term consequences of this reliance at a time when companies need to invest abroad for growth.
Data going back to 2000 shows that for 10 out of 36 sectors in the Nikkei Stock Average, a weaker yen correlates with higher share prices. This includes industries heavy with blue chip exporters, such as automobiles and electronics, which benefit when overseas profits are converted into a weaker yen.
The same data does not show a single sector where stock prices rise as consistently when the yen appreciates.
Among the Group of 20 economies, only stocks in Japan and the U.S. show such a pattern with respect to their currencies.
In Europe, there is no clear relationship between stock prices and the euro. In places like Canada and Indonesia, a strong currency equates to a bull market, while in emerging markets in general, weak currencies weigh down on equity prices due to concerns of capital flight.
"Until the mid-1980s, a strong yen equaled high stock prices," said Yoshihiro Ito at Okasan Online Securities, who has analyzed Japanese equities for more than half a century. The data bears out this relationship during that decade.
Back then, a robust yen signaled confidence in Japan's finances, which drew international funds to its stock market. But during the 1990s, the correlation between the strong yen and a bull market died out. The 2000s saw a shift to the current pattern, a relationship that grew in strength this decade.
