The rise in Japanese stocks is expected to potentially intensify downward pressure on the yen in the short term. Foreign investors are estimated to hold approximately 35% of Japanese equities, and many of these holdings are said to be accompanied by currency hedges. The view is that this could affect the yen exchange rate until the Bank of Japan's policy becomes clearer.
Following corporate earnings for the April–June quarter, a bullish mood has spread across global equity markets, and the Nikkei Average has maintained its rebound since the start of August. Buying on a recovery in semiconductor-related stocks is also progressing, and the index is expected to test levels near ¥77,000 again.
A survey by Japan Exchange Group, the operator of Japan's securities exchanges, indicated that foreign investors hold approximately 35% of Japanese equities, with much of these holdings structured with currency hedges. Hedge adjustments are said to have the potential to affect the yen exchange rate.
It has been pointed out that when share prices rise, investors may reset their hedges to strengthen protection against yen depreciation. Depending on the Bank of Japan's future policy direction, this could become a source of downward pressure on the yen over the next several weeks.
Current market levels were reported as USD/JPY 159.34, EUR/JPY 183.75, GBP/JPY 215.17 and AUD/JPY 112.60.