Recently, the yen exchange rate hit a 34-year low.$USD/JPY (USDJPY.FX)$The exchange rate reached 155, the first time since June 1990.
Bank of America stated in Tuesday's report that the USD/JPY 155 level is the “bottom line” of Japan's Ministry of Finance, and the Ministry of Finance will intervene when the yen falls below this level. If the Ministry of Finance doesn't intervene around 155, the market could quickly push USD/JPY to 160.
In fact, since 2023, the sharp depreciation of the yen has pushed up the pricing of Japanese stocks, making yen assets a global value depression, and attracting overseas capital to flow into Japanese stocks.
On April 17, a team led by Morgan Stanley analyst Rie Nishihara pointed out in a report that the depreciation of the yen is usually a favorable factor for corporate profits. So, what stocks are expected to benefit? Futu News has compiled stocks benefiting from the depreciation of the yen for bullies to refer to:
Dama said that if the yen continues to weaken and the exchange rate of the US dollar against the yen remains high at 155, the profit expectations of Japanese companies may rise due to exchange rate factors, shifting from the current forecast decline to growth.
Judging from the linear relationship between the yen exchange rate and corporate profit, the EPS and yen exchange rate of the earnings per share of the constituent stocks of the Japan Tokyo Stock Exchange Index shows that every time the yen exchange rate falls (that is, depreciates) by a certain margin, corporate profits will improve by a certain percentage.
If the USD/JPY exchange rate actually remains at 155 yen in fiscal year 2024, it is estimated that EPS will receive a boost of about 8% based on the fixed sensitivity assumption described above.
Judging from the 2023 net profit rankings of listed Japanese companies, the performance of leading Japanese companies is basically related to overseas revenue.
In particular, the Japanese automobile industry, represented by Toyota, is expected to increase net profit to 2.9 trillion yen in fiscal year 2023, accounting for 60% of the increase in net profit from Japanese stocks. Take Toyota as an example. The yen depreciated in fiscal year 2023 (23.04-24.03), and Toyota expects that depreciation will increase profits by about 540 billion yen.
Therefore, Morgan Stanley believes that under a scenario where the yen is weak for a long time, the strong US economy will continue to be driven by overseas demand, and that the performance of companies driven by external demand will outperform those related to domestic demand in Japan.
However, Morgan Stanley stressed that when the yen exchange rate fell below 152, the Japanese stock market began to outperform the US stock market, which may have a negative impact on the Japanese stock market.
The excessive weakening of the yen has had the following three major adverse effects on the stock market: first, the impact on the real economy (that is, consumer spending); the second is the widening gap between enterprises and households, and between export companies and domestic demand companies, which is particularly bad for small and medium-sized enterprises; and third, the return rate of overseas investors has declined.
Also, investors should keep in mind that the Bank of Japan will focus on the impact of the rapid depreciation of the yen on the country's inflation at a two-day monetary policy meeting starting tomorrow. This is the Bank of Japan's first policy meeting since the Bank of Japan began raising interest rates for the first time in 17 years and ended its negative interest rate policy in March of this year.
Also, on the same day that the Bank of Japan announced its resolution, the US will release the personal consumption expenditure report, which includes the Federal Reserve's most popular inflation index, the core PCE price index. If the PCE results exceed expectations, it may cause the Federal Reserve to once again postpone the timing of the first rate cut, thereby pushing up the dollar and suppressing the yen.
Editor/Somer