As currency intervention has intensified the yen's move toward appreciation, funds are beginning to rotate, particularly into domestic-demand stocks. Market attention is focusing on the underlying strength of Nitori Holdings as a beneficiary of yen appreciation.
Japan's stock market is showing signs that the government's and the Bank of Japan's intermittent yen-buying, dollar-selling interventions are curbing the one-way yen depreciation that had continued for an extended period. As a result, funds are beginning to rotate not only into export-related stocks but also into stocks that benefit from yen appreciation because of their exposure to domestic demand.
The government and the Bank of Japan carried out massive interventions from 30 July onward, seeking to stabilize the market through coordinated intervention with the United States. Following the intervention, USD/JPY surged temporarily from the ¥164 range to the low ¥155 range.
Data on speculative yen positions released by the US CFTC showed that net short yen positions plunged 72% in the week after the intervention, the largest decline since October 1992. The pressure for further yen appreciation eased, and the yen settled in the ¥157 range in early August. Views are also spreading that ¥160 will be the near-term floor.
The market's focus is gradually shifting toward a Bank of Japan policy rate hike, and moves to price in an additional hike at the next monetary policy meeting in September are gaining traction. The narrowing interest-rate differential is widely seen as likely to support a long-term scenario of yen appreciation and outperformance by domestic-demand stocks.