The “winning pattern” of weak yen and high stock prices will collapse for the first time in 21 years What will happen in 2023?
December 30, 21:58
There is a saying in the stock market that "running for thousands of miles," but the year 2022 was a year of tossed about by Russia's military invasion and global inflation.
In the foreign exchange market, the yen depreciated against the dollar to a historic level, but it was also the year when the winning pattern of the Tokyo market, in which the depreciation of the yen led to high stock prices, broke down for the first time in 21 years.
Will the market in 2023 “bounce” like a rabbit?
A reporter born in the year of the Rabbit looks forward to next year's market.
(Born in 1987 Economic Department reporter Kei Nakazawa)
grand finale
The Tokyo stock market on December 30th, the last transaction of 2022.
The closing price of the Nikkei Stock Average was 26,094.50 yen, a decrease of 2,697 yen, or 9.3%, from the closing price at the end of 2021, lower than the closing price of the previous year for the first time in four years.
Looking back on the stock price movement in the past year, it was not like the saying goes, "running a thousand miles."
Start dash also stalls
On January 4, the first trading day of 2022, the Nikkei Stock Average rose by more than 500 yen compared to the end of 2021, making a good start.
The stock price continued to rise the next day, reaching 29,332 yen.
However, as a result, this was the high price of 2022 at the closing price.
After that, in order to respond to price increases accompanying the resumption of economic activity from the new corona, the view that the central banks of each country will turn to monetary tightening such as raising interest rates spreads, and stock prices are sluggish.
Russia's invasion of Ukraine, soaring resource prices
On February 24th, Russia invaded Ukraine, and soaring resource prices such as crude oil hit the stock market.
On March 8, the Nikkei Stock Average fell below 25,000 yen for the first time in about a year and four months, reaching a closing price of 24,717 yen on the 9th, the next day.
In March, the U.S. Federal Reserve Board will end its two-year zero-interest-rate policy due to the coronavirus pandemic and begin raising interest rates.
On the other hand, the Bank of Japan will take measures to purchase unlimited amounts of government bonds at a specified yield in order to curb the rise in long-term interest rates.
As a result, the appreciation of the yen against the dollar has accelerated due to strong awareness of the widening interest rate differential between Japan and the United States.
In April, the yen depreciated against the dollar for the first time in about 20 years, hitting the 126 yen level to the dollar.
Concerns over economic slowdown due to rapid interest rate hikes
In the stock market, the Nikkei Stock Average recovered to the 29,000 yen level in August due to expectations that corporate performance would improve, but the slump continued thereafter.
The market was conscious of the trend of interest rate hikes in the United States.
With US inflation showing no signs of abating to record highs in August, Fed Chairman Powell made it a priority to keep inflation in check, even if there was "pain" for households and businesses at the Jackson Hole meeting in late August. I made my attitude clear.
This further accelerated the depreciation of the yen.
On September 1, the yen exchange rate fell to the 140 yen level to the dollar for the first time in 24 years.
Government and BOJ to intervene in the market
On September 22, Japan time, when the monetary policies of Japan and the United States were announced, the Fed of the United States raised interest rates significantly, while the Bank of Japan maintained large-scale monetary easing.
The yen exchange rate plummeted to the upper 145 yen level against the dollar, partly due to Governor Kuroda's remarks against raising interest rates.
As a result, the yen exchange rate temporarily swings in the direction of appreciation, but speculators who believe that the difference in the direction of monetary policy between Japan and the United States will not change, and Japanese FX trading participants called "Mrs. Intensify the movement to buy the dollar that has become weaker.
The yen depreciated again, and when the dollar fell to the upper 151 yen level from midnight on October 21 to dawn on October 22, Japan time, the government and the Bank of Japan dared not disclose the fact of intervention. .
The yen has appreciated by more than 7 yen to the mid-144 yen level against the dollar.
On November 10th, the consumer price index announced in the United States fell short of market expectations, prompting growing speculation that the pace of interest rate hikes would slow down, and the yen would move further in the direction of appreciation.
Surprise real interest rate hike by Bank of Japan
Then, on December 20th, a big shock ran through the market.
The Bank of Japan announced that it would revise its monetary easing measures and expand the fluctuation range of long-term interest rates to about 0.5%.
In the market, there was a widespread perception that this was a de facto tightening of monetary policy, and the yen appreciated rapidly.
Only two months after hitting the 151 yen level against the dollar, the yen exchange rate surged to the 130 yen level against the dollar.
As the yen continued to appreciate, the Nikkei Stock Average continued its downtrend towards the end of the year.
Yen depreciation for the first time in 21 years
As a result, the Nikkei Stock Average fell 9.3% from the end of 2021.
The yen has depreciated to about 17 yen since the beginning of the year.
The range of fluctuations in the yen exchange rate was around 38 yen from the mid-113 yen level in late January to the high 151 yen level in late October.
The depreciation of the yen boosts corporate earnings and raises stock prices.
Looking at the 20 years until 2021, there were eight years in which the yen weakened, but stock prices rose in those years without exception.
The shift from a weaker yen to higher stock prices was a composition that could be called a "win-win pattern" for the Japanese economy.
However, in 2022, the merits of the weak yen were not used in the stock price.
It was the first time in 21 years since 2001 that the yen depreciated and stock prices fell at the same time throughout the year.
It has also been pointed out that as Japanese companies have moved their production bases overseas, the benefits of the weaker yen have diminished.
Will the Year of the Rabbit “jump”?
In 2023, the year of the rabbit has a saying, “Bounce”, but will it be a year where you can make a leap as the saying goes?
Yasuya Ueno, Chief Market Economist of Mizuho Securities' Financial Market Research Department, points out the following three points.
1 Wage increase rate
2 Global economic slowdown
3 Bank of Japan governor appointment
1 Wage increase rate
“There is a movement among companies with good performance that a certain level of wage increase should be dealt with positively, and it is highly likely that they will agree on a wage increase rate that exceeds the actual results for 2023. If it rises, it will lead to an increase in prices, especially in the service sector, creating a virtuous cycle between wages and prices, and the achievement of the BOJ's price target will be in sight
.
” Therefore, the common view is that the world economy, centered on Europe and the United States, will deteriorate in 2023. Since it will directly and indirectly affect the Japanese economy, it will be difficult to see how far the economy will deteriorate.
3 BOJ Governor Appointment :
“
We cannot help but think that monetary easing will continue even if a new BOJ governor takes office. There is also the problem of loose discipline and the constant compilation of huge supplementary budgets.I would like to see what kind of policies will be put forward at the monetary policy meeting in April 2023 after the new system is in place.”
Will "Hua" be the year when bad things end and it bounces?
The 2023 zodiac sign (combination of the twelve zodiac signs) is "Mizunotou".
It seems that 琸 means "a state of preparation for the end of things and the beginning of a new cycle".
I can only hope that 2023 will be a year in which turbulent factors in the global economy, such as Russia's military invasion, record inflation, and the coronavirus, will come to an end, and that the Japanese economy will bounce lightly like a rabbit.
Reporter
Kei Nakazawa
Joined in 2011 Worked at
the Fukushima Bureau and the Fukuoka Bureau before being
in charge of the financial and securities industry