A falling yen helped boost Japanese stocks to record levels this year, but overseas investors think there are still opportunities in those equities even as the currency begins to strengthen. For most of this year, the weak yen was a major bull case argument for foreign investors looking at the Japanese stock markets. For instance, it enhanced corporate results for companies like Toyota Motor .
For investors holding Japanese assets denominated in yen, the decline of the currency led to the value of their gains increasing. And for a long period, a weakening yen seemed like a safe trade. From January 2021 to June 2024, the yen depreciated by 55% against the dollar to cross the 161 mark this June, its weakest level since 1986.
However, the Bank of Japan's decision to raise interest rates in late July — thereby reducing the interest rate differential with the U.S. — led to the currency beginning to finally strengthen against the dollar.
Meanwhile, the Nikkei 225 index fell more than 12% on Aug. 5 , its worst day since "Black Monday" of 1987. The yen was last trading at around 144 against the greenback.
JPY= YTD mountain Yen against the dollar in 2024 "Yes, there is [now] volatility, but we're not hiding from it. In fact, we're embracing it and using the liquidity the market's giving us to scale into positions," said Janus Henderson portfolio manager Julian McManus. McManus isn't the only one who increased his exposure into the Japanese market following the early August sell-of.