Ahead of the Jackson Hole meeting, the Fed’s rate outlook and the direction of the Bank of Japan’s monetary policy are the market’s focus. As yen appreciation could affect companies’ earnings outlooks through movements in the Japan–U.S. interest rate differential, this article reviews the Japanese stocks attracting attention.
Ahead of the Jackson Hole meeting, attended by central bankers from around the world, the FOMC held rates in a range of 3.50% to 3.75% in July, although there was a dissenting vote and the outlook for additional rate hikes remains uncertain. In addition, the August jobs report showed that nonfarm payroll growth fell short of market expectations, becoming a factor behind the reduced likelihood of further rate hikes. Against this backdrop, the sustainability of the Fed’s monetary tightening stance is once again being called into question.
The Bank of Japan has indicated that it intends to maintain its stance of pursuing additional rate hikes, while proceeding with monetary policy normalization as it monitors domestic economic conditions and wage and price trends. If downward pressure on U.S. interest rates and upward pressure on Japanese interest rates emerge simultaneously, the Japan–U.S. interest rate differential could narrow, potentially supporting the yen, according to market views.
A stronger yen can benefit importers and domestic cyclical stocks, while stocks in sectors such as automobiles and machinery, which have a high dependence on exports, could face headwinds. Meanwhile, companies that source raw materials from overseas and financial stocks may be able to benefit from an environment of rising interest rates, raising the possibility that the combination of a stronger yen and higher rates could alter fund flows into specific sectors.