Issue:
August 2026
How Much Higher for Tokyo Stocks, and How Much Lower for the Yen?
The yen is not going to reverse its recent plunge anytime soon, nor are Tokyo stock prices likely to tumble sharply from their current heady heights in the near future, financial experts predicted at a FCCJ Deep Dive event on July 2.
The event (“How Much Higher for Tokyo Stocks and How Much Lower for the Yen?”) dispelled any notion that a new multinational initiative to weaken the yen is imminent, or that the soaring Nikkei stock average is part of a wider artificial intelligence (AI) bubble.
There was broad consensus on these points among panelists Naomi Fink, chief global strategist and chief economist at Amova Asset Management (formerly Nikko Asset Management); Hung Tran, senior non-resident fellow at the Atlantic Council in Washington and a former senior official of the IMF and the Institute of International Finance; and veteran economic and financial analyst Jesper Koll.
The yen may be at its lowest level since 1986 against the dollar and Tokyo’s benchmark Nikkei average at nearly double the level it reached in the late 1980s Bubble Economy period, but things are very different now.
Commentators and analysts speculate that Japanese financial authorities – the Ministry of Finance and the Bank of Japan – will step in as they did earlier this year to buy yen and sell dollars in order to lift the yen back above the 162-to-the-dollar level
Turnover in foreign exchange trading (at around $ 9.8 trillion daily according to the Bank for International Settlements) is simply so huge nowadays that unilateral intervention by Japan would create only a minor ripple in the tsunami of financial and economic forces pushing the dollar constantly higher against the yen. This was made clear by the limited impact of Tokyo’s $73-billion intervention several months ago.
There is talk also of a new Plaza Accord initiative of the kind experienced in 1985 when G5 nations led by the United States jointy launched a concerted intervention in the foreign exchange market to push up the value of the yen and blunt Japan’s exporting competitive power, especially with regard to automobiles.
Such intervention seems highly unlikely, however, and not only because it is China, rather than Japan, that is seen now in the West as the “unfair” exporting nation. The administration of Donald Trump in Washington prefers to use tariffs rather than currency wars to blunt rivals’ competitiveness.
As Tran said, “it is unlikely that there will be any concerted effort between Japan and the US because nowadays forex and markets turnover is much larger than back during the Plaza Accord time, and therefore intervention is not likely to be effective. And the attitude in Washington is really not in favor of this kind of concerted action.”
The weakening of the yen, he added, “is structural in nature, and recent developments seem to have strengthened that structural weakening trend.”
The so-called Mar a Lago Accord (named after Trump’s private residence) and proposed last year by former chair of the president’s Council on Foreign Relations Stephen Miran to weaken the dollar, is unlikely to find traction either, given that dollar weakness would very likely stoke US inflation in the run-up to the US Midterm elections, which Trump will wish to avoid at all costs.
For all the Trump administration’s vacillation over its preference for a weaker, and then a stronger dollar (the currency that still determines the exchange rate against most other currencies) it is actually the US president’s “Make America Great Again” or MAGA vision that is driving dollar ascendancy and yen (or euro and yuan) weakness, said Koll.
President Trump, he noted, is using the tariff threat to bludgeon both foreign direct business investors and portfolio investors to pump money into US industrial or infrastructure projects and into US stocks, and that is driving the dollar ever higher. Thus the weak yen will remain in the doldrums for some time and Koll even predicted that it could slump to 200 to the dollar by year end.
The demand for yen among so-called “carry trade” investors is meanwhile , contributing to the currency’s slide. The carry trade had reached massive proportions in recent times as investors borrowed relatively cheap-yen in order to finance the purchase of higher yielding US and other non-Japanese securities
As for the Tokyo stock market, Fink and other Deep Dive panelists suggested that while the bull run which has taken the Nikkei average up to the 70,000 level in recent times is partly “momentum driven” – a herd instinct in effect - the rise is also supported by recent robust corporate profits in and beyond Japan.
AI stocks – supposedly the equivalent of IT shooting stars – make up a far smaller component of the Nikkei average than did IT shares in Nasdaq in the year 2000, and AI companies continue to turn in healthy profits, whereas many IT companies even at the height of the dot-com bubble were startups that had yet to make any return.
The bottom line of the Deep Dive was that the yen will stay put - more or less - at around current levels in the foreseeable future and that tech stocks are unlikely to crash to earth any time soon.
Anthony Rowley is a columnist and contributor for the South China Morning Post.
