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(Bloomberg) -- Japanese stocks have had a banner year in 2024 but for dollar-based investors, it has been a different story.
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The benchmark Topix index reached a record high in 2024 and rose around 15%. But the dollar-denominated gains are a meager 3% as the yen tumbled around 10% against the greenback. That’s far below those posted by its global peers, including the S&P 500 and the Hang Seng China Enterprises Index in US currency terms, which both rose over 25%.
Although the yen’s slide boosted exporters’ profits and the Bank of Japan’s rate hikes supported financial stocks, the limited net inflow this year shows that the weakness and volatility in the currency are keeping foreign funds away. It’s also weighing on the economy via costlier imports and inflationary pressure.
This trend is likely to continue in 2025, as traders trim their bets on a yen rally after central bank policy meetings in the US and Japan cast doubts on how quickly the rate differentials between the two markets may narrow.
“Foreigners have put a substantial sum in Japan already and the results have been very disappointing,” said Amir Anvarzadeh, Japan equity strategist at Asymmetric Advisors Pte. The recent signals from the BOJ “is doing much damage in terms of hurting the yen and raising import prices while forcing foreign investors to hedge more of their currency risk when investing in Japan,” he said.
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