Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How Japan's Stock Surge Is Rewiring Global Trade
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- Lucas: So Luna, you've been watching the Asian markets close all week. What's your read on the moves we're seeing out of Tokyo? Luna: Honestly, it's been wild. The iShares MSCI Japan ETF is up nineteen percent in five days. That's not a normal week. Lucas: Nineteen percent in five sessions. That's the kind of move you'd expect after a major policy shock or a structural breakthrough. And I think it's actually both. The Bank of Japan finally signaled it's serious about normalizing policy, and that's forcing a massive repricing of Japanese assets. Luna: But wait, a rate hike usually hurts stocks, right? Why is Japan rallying on tighter policy? Lucas: Because the market's reading it as a vote of confidence. The BOJ only hikes when it believes inflation is sustainably above target and wages are actually growing. And for years, investors have been saying Japan is structurally broken. This is the clearest signal yet that the deflationary mindset is finally over. Luna: And the yen? It's still sitting around 159 to the dollar. That's not exactly strong. Lucas: Right, the yen hasn't moved much yet. But that's actually part of the story. The BOJ's hiking while other central banks are pausing, but the yield differential is still wide enough that the yen stays weak. And a weak yen is rocket fuel for Japan's exporters. That's why we're seeing the rally led by the big names—Toyota, Sony, the robotics players. Luna: So a weak yen and a hawkish BOJ—that sounds contradictory. Aren't those pulling in opposite directions? Lucas: You'd think so, but the market's looking past the near-term. The weak yen boosts earnings today, while the rate hikes signal that Japan is finally a normal economy with pricing power. That combination is incredibly attractive to global investors who've been underweight Japan for a decade. And we're seeing that in the flows—this isn't just domestic buying. Luna: That makes sense. And it's not just Japan. Taiwan's up fourteen and a half percent in a week. That feels connected. Lucas: Taiwan is a different driver, but it's part of the same story of Asia re-rating. Taiwan's surge is tied to the AI trade and the semiconductor cycle. When the US and other markets are hitting records, the suppliers in Taiwan ride that wave. But there's also a geopolitical angle—the Strait of Hormuz deal could ease energy costs, which helps import-dependent economies like Japan and Taiwan. Luna: Right, oil prices tumbled on the news that a deal might come this week. That's a big deal for Japan, which imports almost all its energy. Lucas: Exactly. Lower oil prices are effectively a tax cut for Japanese manufacturers. So you have this confluence: a policy shift at the BOJ, a weaker yen, and a drop in energy costs. All three are lifting the outlook for corporate profits. And that's why you see the S&P 500 also hitting records—global trade sentiment is improving, and Japan is one of the biggest beneficiaries. Luna: But how sustainable is this? Nineteen percent in a week feels like it could be front-running. Lucas: That's the million-dollar question. Some of that move is undoubtedly short-covering and momentum. But the structural case for Japan has been building for a while. Corporate governance reforms, more buybacks, better shareholder returns. The weak yen is a tailwind, but it can also be a headwind if it pushes input costs up faster than exporters can pass them on. Luna: And what about the carry trade? A weaker yen has historically fueled global risk appetite. Is that back? Lucas: There's evidence of it, yes. When the yen is weak, investors borrow yen at low rates and buy higher-yielding assets elsewhere. That amplifies rallies in emerging markets, which we're also seeing—the MSCI Emerging Markets ETF is up over eight percent this week. But it also creates fragility. If the BOJ moves faster than expected, that trade can unwind violently. Remember what happened in August 2024. Luna: Yeah, that was brutal. But is the BOJ really going to keep hiking? The economy isn't exactly booming. Lucas: They're in a delicate dance. They want to normalize policy without choking off growth. But the longer they wait, the more the yen weakens, and that fuels import inflation. So they're walking a tightrope. The market is betting they'll manage it, but there's a real risk they overshoot. Luna: It's interesting because for multinationals, this changes the calculus. If you're a company deciding where to build your next factory, Japan just became more attractive. Lucas: Absolutely. The weak yen makes Japanese labor and assets cheaper in dollar terms. We're already seeing foreign direct investment pick up, especially in advanced manufacturing. And it's not just the big conglomerates—smaller suppliers are getting attention too. But there's a flip side: if you're a Japanese company that imports raw materials, your margins are getting squeezed. Luna: So it's a zero-sum game within Japan itself. Exporters win, importers lose. Lucas: That's the classic story. And it's why the BOJ can't just let the yen fall forever. Eventually, the cost of living pressure becomes a political issue. But for now, the market's in risk-on mode, and Japan is the poster child. Luna: And I suppose this is also a reminder that when we talk about global trade, it's never just about tariffs and shipping routes. Currency policy is a trade policy in itself. Lucas: Exactly. And that's something we explore in depth on this show. If you're finding these conversations useful—whether you're navigating cross-border deals or just trying to understand the forces shaping global business—there's a simple way to keep them coming. A lot of listeners support us by buying us a coffee, and it genuinely helps keep the podcast independent and ad-free. Luna: Yeah, I'll second that. It's a small gesture but it means the world to us. Lucas: If that's something you're open to, you can find us at buy me a coffee dot com slash fexingo. No pressure, just know that every bit helps. Luna: And on that note—we were talking about how Japan's rally is tied to the yen. But there's a bigger question: how does this shift the global trade balance? Because a weaker yen makes Japanese exports cheaper, which could widen trade surpluses with the US and Europe. Lucas: That's exactly the tension. The US has been vocal about trade deficits, and Japan's surplus is likely to grow as the yen stays weak. We're already seeing the trade-weighted dollar index at nearly 120, which is high. That makes US exports less competitive, but it also keeps import prices low, which helps the Fed fight inflation. Luna: So a weak yen is good for US consumers but bad for US manufacturers. Classic. Lucas: Classic, yes. And it's why we're seeing renewed pressure on Japan from Washington to let the yen appreciate. But Japan has its own reasons to keep it weak—it boosts corporate earnings and tax revenues. So this is a political battle as much as an economic one. Luna: And what about the broader Asia picture? India's up, South Korea's down. There's a divergence there. Lucas: Right, India is benefiting from the nearshoring trend and its own domestic demand. South Korea is struggling with its semiconductor cycle and some corporate governance issues. So it's not a uniform Asia rally—it's selective. Japan and Taiwan are the standouts this week because they're tied to the AI trade and the weak yen. Luna: So if you're a global investor, where do you put your money? Is Japan a buy or a bubble? Lucas: I'd say it's a buy on dips, but not at these levels. The fundamentals are improving, but nineteen percent in a week is a lot. You want to wait for a pullback. The key is to watch the BOJ and the yen. If the yen starts moving higher, the export rally could stall. Luna: And what about the carry trade? Is that something retail investors should be aware of? Lucas: For sure. The carry trade is a double-edged sword. It can boost returns in good times, but when it unwinds, it's fast and violent. Just look at what happened in 2024. So if you're trading in these markets, keep an eye on the yen and the BOJ's tone. Luna: Good advice. So bottom line: Japan is back, but it's not without risks. Thanks for breaking it down, Lucas. Lucas: Anytime. And we'll be watching to see if this momentum holds into the fall. Stay tuned.