The Nikkei 225 has seen a 20% increase year to date, hitting a new high in both local currency and US dollar terms. This reflects a rise in investor confidence in Japan's economy and the end of its deflationary phase. Two key factors are at play: corporate Japan's emphasis on return on equity and price-to-book ratios, resulting in record share buybacks and dividend payouts, and shifts in Japan's labor market due to a decrease in the working-age population.

Derek Halpenny, Head of Research, Global Markets EMEA & International Securities at MUFG, discusses in the video the expectation of a rate hike by The Bank of Japan (BOJ) in the next meeting, reflecting confidence in ongoing wage growth and inflation.

Nevertheless, global economic conditions and inflation rates in other nations could affect the potential for yen appreciation. Despite a projected slowdown in the US economy, it is expected that the yen will drop below the 140 level and reach the mid-130s by year-end.

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Key points

  • 00:26 - Inflation optimism in Japan is rising. Does MUFG expect the BoJ to respond?
  • 02:37 - So is it a given that the yen will strenghten if the BoJ hikes rates for the first time since 2007?

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