Wall Street warns Japan? BlackRock: Weak yen hinders foreign investment in Japanese stocks

The yen's weakness is "discouraging" foreign investment.

Since the beginning of this year, the Nikkei 225 index has accumulated a rise of over 14%, outperforming most other major global stock indices. However, with the yen/dollar exchange rate falling to a 34-year low, foreign investors' returns have temporarily shrunk to 3%.

In comparison, the S&P 500 index has seen a cumulative increase of 9.5% so far this year, and the Hang Seng Index has a USD return rate of 11%.

Affected by the depreciation of the yen, the gains of various Chinese Nikkei ETFs have also been eroded. According to statistics from Securities China, the average net asset value increase of Nikkei ETFs is only 5.42%, widening the performance gap with the Nikkei 225 index to nearly 9 percentage points.

In response to this, Yue Bamba, head of BlackRock's Japanese equity investment department, stated:

"When you talk to global investors about Japan, the exchange rate issue is definitely the most concerning."

"If the currency continues to depreciate, investing in Japanese stocks will become more challenging."

As of the time of writing, the USD/JPY is still above 155, at 155.87.

Key Level for Foreign Investment to Return to Japanese Stocks: 150

Bamba believes that the future performance of the yen will depend more on the actions of the Federal Reserve: if the Fed does not cut interest rates, the yen may continue to depreciate to 170; if they do cut rates, a rebound of the yen to 130 to 135 is "entirely imaginable."

Bamba stated that driven by corporate reforms, domestic investment, and wage growth, the market fundamentals remain strong, and the fair value of the yen is much higher than the current level. If the yen rebounds above 150, foreign investment will return to the Japanese market.

Regarding the central bank, Bamba expects the Bank of Japan to raise interest rates in July or October and reduce its purchases of Japanese government bonds before that to boost the yen.

In addition, Vanguard Group predicts that by the end of the year, the BOJ's benchmark interest rate will rise from the current 0%-0.1% to 0.75%; Pacific Asset Management expects the BOJ to raise rates three times, each time by 25 basis points.

It is worth noting that hedge funds are still betting on the yen continuing to weaken, with short-term funds buying put options in the 160 to 161 range