Why yen strength and stockmarket weakness do not go hand in hand

Negative rates a concern for banking sector

Keeping faith with Abenomics might not be a widely-held view after a bruising first quarter for Japanese equities, courtesy of worries over a strengthening yen and more recently disappointment at perceived inactivity by the Bank of Japan (BoJ), writes Scott McGlashan, fund manager at JOHCM.

But this market pessimism is based upon a widespread misperception that yen strength and stockmarket weakness always go hand in hand. History, however, shows they do not. Regardless, Japanese equity investing is not all about the currency. We can see that in the rising profits of non-manufacturers, domestic-facing companies whose fortunes are unrelated to the level of the yen. The explosion in profits at Japan Inc in recent years is actually the fruit of a decade-plus drive by Japanese firms to cut costs and improve efficiency. A modest top-line recovery is feeding through to bumpe...