Depreciation of the yen improves “yen-equivalent return” of US stocks–getting on a shift in exchange trends

This article is a reprint from “Toushiru” provided by Rakuten Securities, “Understanding in TOP 3 Minutes! Today’s Investment Strategy”. Today’s point The yen-equivalent return of US stocks improves due to the strong dollar / weak yen The “widening interest rate differential” between Japan and the US has changed the trend of the dollar / yen Growth rate outlook and the whereabouts of the working-age population The United States will increase. Will the dollar strengthen? I would like to introduce the views of Mr. Mutsumi Kagawa, Chief Global Strategist of Rakuten Securities Economic Research Institute, on these four points. Yen-equivalent return of US stocks improves due to strong dollar / weak yen The major US stock indexes have remained in the high range. The Biden administration has announced that it will speed up the spread of vaccination and aim for 200 million vaccinations by the end of April. On March 31, it announced an infrastructure investment plan that would spend $ 2.25 trillion (about 250 trillion yen) in eight years. Following the $ 1.9 trillion economic stimulus package enacted on March 11, he showed a strong will to grow the economy and employment sustainably. In this article, I would like to explain the current situation in which the “yen-equivalent return” of US stocks is improving. In general, if the yen strengthens (foreign currency depreciation), the yen-equivalent return obtained from foreign equity investment will decrease, and if the yen depreciates (foreign currency appreciation), the exchange gain will boost the yen-converted return. become. When investing in foreign stocks (unless you hedge the currency at a cost), you cannot avoid the risk of currency fluctuations. The exchange rate can change to a stronger yen or a weaker yen, and it is difficult to accurately predict its whereabouts. However, the exchange rate is changing its trend to a stronger dollar / weaker yen this year, and it is noteworthy. Chart 1 compares year-to-date returns by index (on the left) and yen-converted (on the right) for each stock index of Japanese, US, and foreign equities. It can be seen that the yen-converted returns of the US NY Dow Jones Industrial Average, S & P500 Index, and MSCI Kokusai (World Stock Index excluding Japan = foreign stocks) are superior to TOPIX (Tokyo Stock Price Index) and Nikkei Stock Average (as of the end of March). .. In 2021, “foreign exchange gains” have been added to the returns on foreign equity investment.

(Source) Created by Rakuten Securities Economic Research Institute from Bloomberg (March 31, 2021)