In fact Japanese equities have delivered a cumulative 44.4% return since the start of 2023 (measured in Yen) versus a cumulative return of 35% for US equities ( in USD).
Exhibit 1: Comparing Japanese equity return profiles in Yen v USD
What has driven the strong recovery in Japanese Equities?
An important catalyst behind the rally in Japanese equities has been the weakening of the yen. The depreciation of the yen from close to 100 Yen per USD in late 2020 to a current rate of 150 has been a key driver of equity returns.
Exhibit 2: The weakness of the Yen has been important
In Exhibit 3 we show the sector weighted contribution of Japanese sectors since the start of 2023. Three sectors - Industrials, Technology and Transportation (Autos) - have contributed almost two thirds of the 27.8% cumulative return.
Exhibit 3: Three sectors have dominated Japanese equity returns
Exhibit 4 shows that, despite the recent surge Japanese equities in absolute terms (blue line), they are still close to rock bottom in terms of relative performance when compared to Global Equities (red line).
Exhibit 4: Lots of scope for Japanese equities to play catch up in terms of relative performance
Source: Wilshire Indexes. Data as of February 29, 2024.
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