KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
The long-held belief that a weaker yen benefits Japanese stocks is unraveling as the correlation between the two diminishes due to diverging global monetary policies.
Key Developments
Topix Stagnation:
- Despite the yen’s volatility, the Topix Index has remained range-bound since its summer crash.
- The correlation coefficient between the yen and Topix is near zero, indicating negligible linkage.
BOJ’s Policy Shift:
- The Bank of Japan (BOJ) shifted focus in May to curb inflation driven by a weak yen, rather than stimulating a virtuous cycle of wages and prices.
- Foreign investors have been net sellers of Japanese stocks since this shift.
Impact of BOJ Hawkishness:
- A weaker yen now signals potential BOJ rate hikes, which depress stock valuations.
- The BOJ’s hawkish stance contrasts with expectations of rate cuts by the US Federal Reserve, creating further headwinds for Japanese equities.
Changing Dynamics of the Japanese Economy
Export Dependency Declines:
- Japan’s economy, long perceived as export-driven, has run trade deficits since 2019.
- Exports have stagnated over the past decade, making the economy less reliant on currency depreciation.
Shift in Corporate Strategies:
- Companies like Hitachi and Sony have reduced foreign exchange exposure by shifting production overseas and employing hedging strategies.
- This structural change diminishes the benefits of a weak yen for many firms.
Strong Yen Benefits:
- A stronger yen reduces input costs, potentially boosting profit margins for non-exporting firms.
- Companies with lower forex sensitivity and high overseas sales are now preferred by investors.
Investor Behavior
- Stock Selection Trends:
- Investors are increasingly targeting companies with foreign demand exposure but low yen sensitivity, moving away from legacy preferences for forex-sensitive firms.
- This marks a shift from 2022, when yen-sensitive stocks were favored.
Outlook
Continued Pressure on Stocks:
- Japanese equities are likely to remain under pressure as long as the BOJ maintains a hawkish stance relative to the Fed.
- Structural changes in Japan’s economy suggest that a weaker yen will no longer provide the broad stock market boost it once did.
Selective Gains:
- Exporters like Toyota Motor Corp may still benefit from a weaker yen, but aggregate earnings impacts are expected to be limited.
Conclusion
Japan’s economic transformation and changing monetary policy dynamics are reshaping the yen-equity relationship. Investors are adopting a more nuanced approach, favoring firms positioned to thrive in this evolving environment.
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