Riding the Wave? Expert Insights on Japan’s Booming Stock Market and New NISA Strategies for Beginners

More than 60% of typical global stock index funds, such as “Orcan,” are U.S. stocks

Many individual investors may not know how to diversify their assets.

For example, public pension funds invest about half of their invested funds in stocks, with about half of their stock investments in domestic and half in overseas stocks, and about 90% of their overseas stock investments in U.S. stocks, according to Kagawa.

He also said that more than 60% of the leading global stock index funds are in U.S. stocks.

The allocation of investments in such a professional world may also be helpful.

Japanese stocks continue to do well, but… in the long run, are U.S. stocks still the way to go?

Mr. Kagawa points out that the background to the popularity of U.S. stocks is that “the U.S. population is growing and technological innovation is advancing.

Is there any blind spot in investing in Japanese stocks? The risk factor for Japanese stocks is the strong yen. If the yen appreciates rapidly, the performance of exporters such as automobile companies will suffer,” Kagawa said.

The biggest influence on the foreign exchange market is the trend of interest rates. Money flows to countries with high interest rates. The U.S. has repeatedly raised interest rates in response to rising inflation risks. Japan, on the other hand, has kept interest rates at ultra-low levels. The widening interest rate gap between Japan and the U.S. has led to the dollar’s appreciation and the yen’s depreciation.

Recently, inflation risks in the U.S. have calmed down and the possibility of further interest rate hikes has receded. In Japan, on the other hand, if wage hikes continue, the possibility of a review of the ultra-low interest rate monetary policy is increasing. A narrowing of the Japan-U.S. interest rate differential is likely to lead to a stronger yen and weaker U.S. dollar.

Mr. Kagawa is also paying attention to the “digital balance of payments. The more Japan uses U.S. information technology (IT) services such as Microsoft, Google, and Amazon, the more money falls on the U.S. side. This is the reason for the strong dollar and weak yen. Some estimates suggest that the use of U.S. IT services may amount to 7 to 8 trillion yen annually.

Those who are concerned about the recent rise in Japanese stocks may want to consider the five key words that Mr. Kagawa advises.