A weak yen might not be as good for stocks as is often believed, according to some analysts, and investors should take care not to assume that currency woes are automatically good for the Nikkei 225 stock average.
“If we focus just on the exchange rate, the yen’s decline is certainly a plus for earnings,” said Chisa Kobayashi, Japan equity strategist at UBS SuMi TRUST Wealth Management. “But if it weakens excessively, and especially if it happens rapidly, say to roughly ¥165 or ¥170, concerns over downward pressure on valuations will grow.”
The argument is that a weaker yen can lead to higher interest rates, and that might trigger a sell-off. Concerns about “bad” rate increases have grown recently as 10-year Japanese government bond yields have climbed. The bond hit 3% for the first time in 30 years earlier this month.
