Editor’s Note
This article examines the complex interplay between geopolitical events, currency fluctuations, and equity markets. It highlights how the yen’s recent depreciation, influenced by external factors, has provided a tailwind for Japanese exporters, even as global volatility persists.
The market fluctuated. This weakening of the yen has become a supporting factor for the stock prices of Japanese export companies.
On June 24, the Nikkei Stock Average rose following President Trump’s announcement of a “ceasefire agreement between Iran and Israel,” closing at 38,790.56 yen, up 436.47 yen (1.14%) from the previous day.
However, global markets have been significantly swayed by recent changes in the Middle East situation. Looking back at the start of the week on June 23, escalating Middle East tensions temporarily caused a surge in crude oil futures prices and a strengthening of the US dollar. However, subsequent reports strengthened the view that “the likelihood of the Middle East situation worsening further is low,” and the market regained calm as crude oil futures markets plummeted.
The trigger for the surge in crude oil futures prices was the US attack on Iranian nuclear facilities. President Trump tweeted around 8:50 AM Japan time on June 22 that he had “successfully completed attacks on three Iranian nuclear facilities.” The targets were Fordow, Natanz, and Isfahan, with all bombs loaded on bombers reportedly dropped on the underground nuclear facility at Fordow. This heightened global concerns about tightening crude oil supply.
Amid heightened Middle East tensions, risk-off selling dominated the Japanese market, with the Nikkei Average hitting a low of 38,026.32 yen at 9:34 AM on June 23, shortly after opening. However, it later turned upward, closing at 38,354.09 yen on June 23, down only 49.14 yen (0.13%) from the previous week’s close, narrowing the decline towards the close. This was because many investors viewed the likelihood of Iran blocking the Strait of Hormuz, a crucial oil shipping chokepoint, as low, leading to a gradual dominance of dip-buying.
Additionally, in the foreign exchange market, the “dollar-buying in times of crisis” movement accelerated, and concerns grew that Japan’s trade deficit would expand due to the surge in oil prices, pushing the USD/JPY rate to the 147 yen level (weaker yen, stronger dollar).
On the 24th, President Trump announced that “Israel and Iran have agreed to a ceasefire,” reducing geopolitical risk and pushing the Nikkei Average up to 38,790 yen.
The NY Dow continued to rise on June 23 (US Eastern Time), closing at 42,581.78, up 374.96 dollars (0.89%) from the previous week’s close. The Nasdaq Composite Index rebounded, closing at 19,630.97 points, up 183.57 points (0.94%).
Meanwhile, the August contract for WTI crude oil futures ended trading at $68.51 per barrel, down $5.33 (7.2%) from the previous week’s close. On June 23 local time, Iran launched a missile attack targeting the US Air Force base, Al Udeid Air Base, near Doha, Qatar, in retaliation for the US attack on Iranian nuclear facilities. However, news that “Iran had notified the US and Qatar of the attack in advance through diplomatic channels” strengthened the view that “Iran does not desire further escalation,” which is thought to have led to the sharp drop in crude oil futures prices. This sharp drop in crude oil futures prices became the backdrop for the rise in US stocks.
Furthermore, President Trump posted on his social media around 7 AM Japan time on June 24 (after 6 PM US Eastern Time on the 23rd):
He stated that Iran would first begin the ceasefire at 1 PM Japan time on the 24th, followed by Israel, with the ceasefire officially taking effect at 1 PM Japan time on the 25th.
This news increased the likelihood of reduced geopolitical risk in the Middle East, and the Nikkei Average rose on June 24, closing at 38,790.56 yen. The USD/JPY rate also fluctuated to around 145.40 yen per dollar (stronger yen, weaker dollar).
If the ceasefire materializes as per Trump’s post, geopolitical risk in the Middle East is expected to decrease significantly, strengthening risk-on mood in the market. Specifically, further declines in oil prices, stock market gains, and lower interest rates (higher bond prices) are anticipated.
As long as foreign investors and business corporations (through share buybacks) continue buying, the risk of a sharp decline across Japanese stocks is low, and particularly the small and mid-cap stock market is expected to show resilient movement.
Regarding the Japanese market, foreign investors and business corporations (via share buybacks) continue to buy Japanese stocks. According to stock trading trends by investor type for the second week of June (9th-13th), foreign investors were net buyers of Japanese stocks by 99.7 billion yen. This marks 11 consecutive weeks of net buying, with a cumulative net purchase of 3.9726 trillion yen during this period. Business corporations also continued aggressive share buybacks, with a net purchase of 322.9 billion yen during the same period. This also marks 11 consecutive weeks of net buying, with a cumulative net purchase of 3.0855 trillion yen.
Looking at the credit balance ratio, it has decreased from 9.63 times as of April 4 (when the market was in a sharp decline) to 4.80 times as of June 13. The outstanding balance of margin buying also decreased from 4.4696 trillion yen as of April 4 to 4.0489 trillion yen as of June 13, indicating that credit supply and demand conditions remain favorable.
Therefore, regarding stocks and markets with high individual investor participation rates (Standard Market and Growth Market), it is recognized that a favorable supply-demand environment continues, making sharp declines related to margin calls less likely. For this reason,
From a technical perspective, the Nikkei Average achieved a “golden cross” on May 29, where the 25-day moving average crossed above the 75-day moving average. Furthermore, the closing price on June 24 was 38,790.56 yen, above the 200-day moving average (38,932.69 yen as of the 24th), which indicates the long-term trend.
Regarding the future of the Nikkei Average,
Conversely, if it falls below the 200-day moving average, a “risk-off” response, such as reducing long positions, would be necessary.
The Japanese market is in a situation where the external environment is improving, credit supply and demand is favorable, and continuous buying by foreign investors and business corporations is expected.
Although geopolitical risk in the Middle East has decreased, the impact of Trump’s tariffs on Japanese corporate profits remains an upward pressure factor for Japanese stocks. Regarding Japan-US tariff negotiations, no agreement was reached even at the Japan-US summit held in Canada on June 16. The Japanese government is requesting the US government to review the 25% additional tariff on automobiles made outside the US and reciprocal tariffs on most imports.
However, considering that the external environment is improving (geopolitical risk in the Middle East is decreasing), credit supply and demand is favorable, and continuous buying by well-funded buyers (foreign investors and business corporations) is expected,
In conclusion, active market participation is recommended, premised on buying on dips.