While Japanese stocks, which have been rising under the influence of overseas investors, experienced a decline in July, U.S. stocks have continued to rise, driven by expectations of a soft landing in the economy.
The Japanese stock market is believed to have reached a turning point due to a slowdown in overseas investor buying and a shift in the dollar yen exchange rate towards yen appreciation. On the other hand, U.S. stocks were supported by increasing positive economic indicators and expectations of improved corporate earnings, amid stabilisation in inflation and interest rate expectations.
Both the Japanese and U.S. stock market’s previous upward movements can be explained by an expansion in forward price-to-earnings. Further rises are dependent on continued improvement in corporate earnings and a sustained accommodative financial environment.
Written by Takeru Ogihara, Chief Strategist, Asset Management One Co., Ltd