How Individual Investors Should Act Now Amid Additional Interest Rate Hikes, Moshi Tora, and Harris Phenomenon

The single-minded “weak yen” is over. …… What will be the trend by the end of the year?

The depreciation of the yen is believed to be due to the widening interest rate differential between Japan and the U.S. While the U.S. has repeatedly raised interest rates to curb inflation, Japan has maintained a policy of ultra-low interest rates, making it easier for money to flow toward higher interest rates and accelerating the trend of buying dollars and selling yen. At the beginning of this year, the yen was around 140 yen to the dollar, but the yen weakened and the dollar strengthened, reaching the 160 yen level at one point in July. Since then, the yen has been hovering around 150 yen.

A weaker yen has a significant impact on the Japanese economy, such as accelerating inflation through higher import prices. What will happen to the exchange rate in the future?

Mr. Ichikawa said, “The single-minded weakening of the yen has ended,” and although he expected the yen to appreciate to about 147 yen by the end of the year, he believes there is room for the yen to move a little more strongly. The reason for this is that the U.S. will begin cutting its policy interest rate in September, narrowing the Japan-U.S. interest rate differential, albeit slightly. In the U.S., inflation is slowing, and interest rates are expected to shift from hikes to cuts. In Japan, large wage increases will permeate through the fall, and real wages, net of price increases, have been negative, but are expected to turn positive around September.

What kind of attitude should individual investors take? ……

Under these circumstances, what kind of attitude should individual investors take? Mr. Kagawa believes that since the value of cash and deposits will diminish due to inflation, allocating assets to stocks and other assets that can be expected to rise in value over the long term is an option. Although it is difficult to predict the long-term trend of the foreign exchange market, he recommends diversifying investments between Japanese stocks and overseas stocks, especially those of the United States.

As an example of diversification, Kagawa cites the Pension Fund Investment Fund (GPIF), which he says has a roughly 50-50 split between Japan and overseas, with the U.S. as the core of its overseas holdings. In addition, while the “core” is Japan and the U.S., the GPIF is focusing on India, which is growing remarkably, as a “satellite. This is the so-called “core-satellite” investment theory.

When investing in stocks, novice investors have a hard time selecting individual companies. If they make a long-term investment and the company goes bankrupt, their stock certificate becomes a piece of paper. Therefore, Mr. Kagawa says, index funds are an option. Index funds are investment trusts that are linked to a representative index that represents the movement of the overall market, such as the Nikkei Stock Average.

Unlike individual companies, index funds do not go out of business,” says Kagawa. For beginner investors, this is a good way to fill the investment limit of the new NISA, a small investment tax exemption system provided by the government,” he says.

In addition to Japanese stocks, he says, there are also investment trusts called “Orcan” (all-country = worldwide stocks) and investment trusts that invest in the S&P 500, the stock price index of companies representing the United States, as overseas diversified investment destinations.

Mr. Hiroki said, “It is good to buy before the market rises,” he said. It is a good idea to stock up now,” he says. Stock prices basically go up and down. It is a good idea to accumulate funds such as index funds. It is a long-term, steady investment.

Hiroki, on the other hand, makes the following point about interest rates in Japan. The BOJ has been buying a large amount of JGBs as part of its monetary easing measures to flood the market with funds, but after the monetary policy meeting on July 31, BOJ Governor Ueda announced a plan to halve the amount of JGB purchases by January to March 2014. Therefore, he believes that “money will no longer be available and money will be taken away from the market.

Banks will raise interest rates and compete for money, he said. Hiroki said, “As happened with Silicon Valley Bank in the U.S., we may see sudden failures of even weak financial institutions in Japan.

Large banks will probably be fine, but weaker financial institutions may be affected by the BOJ’s monetary normalization. Discernment will also be important in selecting investment targets.