The Bank of Japan's policy decisions and movements in interest rates, prices and foreign exchange can contribute to share price declines even when corporate earnings are strong. U.S. economic trends and AI-related investment are also affecting Japanese equities.
One perspective on why share prices can fall even when corporate earnings are strong is that movements in macroeconomic indicators have a significant impact, with the Bank of Japan's monetary policy, price trends, foreign exchange rates and market expectations acting in combination.
The Bank of Japan's monetary policy and movements in long-term interest rates affect companies' financing costs and the present value of future earnings, and are also linked to PER levels. Growth stocks tend to be more affected during periods of rising interest rates, but companies whose earnings growth exceeds market expectations may still have room for further revaluation.
Price trends and changes in real wages are directly linked to domestic consumption, and the gap between nominal wages and purchasing power affects corporate sales and earnings. Even when wages rise, purchasing power may decline if prices rise faster, leaving the performance of consumer-related stocks dependent on the combination of wage and price trends.
U.S. economic trends and AI-related investment are also important when assessing the current position of Japanese equities. They need to be monitored comprehensively together with future foreign exchange trends and resource price movements.