As the yen strengthens beyond companies' assumed exchange rates, views are spreading that domestic-demand stocks are likely to take center stage in Japanese equities. The average assumed exchange rate among approximately 220 TOPIX constituent companies is ¥153.90 to the dollar, while the yen rose into the upper ¥152 range on the 8th.
According to Bloomberg's compilation, the exchange rates underlying listed companies' earnings forecasts have moved toward a stronger yen, increasing the likelihood that funds will flow into domestic-demand stocks. Views have emerged that further yen appreciation will heighten concerns about downward pressure on export-related companies' earnings, increasing the relative appeal of domestic-demand stocks.
The average assumed exchange rate disclosed by approximately 220 TOPIX constituent companies is ¥153.90 to the dollar. The yen briefly rose into the upper ¥152 range on the 8th. Companies reportedly tend to set conservative assumptions to avoid downward revisions to their full-year earnings forecasts during the fiscal year as a result of exchange-rate fluctuations.
Shoji Hirakawa (平川昇二), chief global strategist, said investors may sell export-related stocks in the near term and shift funds toward domestic-demand sectors such as real estate and construction, which benefit from a stronger yen and lower interest rates.
Against a backdrop of yen appreciation, the TOPIX Transportation Equipment Index, which is dominated by automakers, has fallen about 8% since the start of the month. By contrast, domestic-demand-led sectors such as construction and electric power and gas have outperformed the broader market.
Experts said the benefits of a weaker yen remain significant, but expressed the view that if the yen continues to appreciate, the negative impact on corporate earnings is likely to attract greater attention.