Hello, this is Kim Il-kyu, a correspondent for Hankyung Global Market in Tokyo. This week, the Nikkei index in the Tokyo stock market fluctuated around the 38,000 mark, showing relatively stable performance. It rose slightly in response to expectations of interest rate cuts in the United States and then fell slightly due to the recent increase in the yen. The Nikkei index, which peaked at 42,224 on July 11, has dropped to an annual low of 34,458 as of the 5th. The decline was nearly 8,000 points, but considering it is currently around 38,000, it has recovered about 70%. At the beginning of the year, the stocks that led the Nikkei index were the seven stocks known as the Samurai 7. Just as there is the Magnificent 7 in the New York Stock Exchange, Tokyo's stock market has the Samurai 7. In February, Goldman Sachs referenced Akira Kurosawa's classic film Seven Samurai.

The seven stocks leading the two indices selected are as follows: among the complete vehicle manufacturers, Toyota Motor and Subaru are listed. In the semiconductor sector, there are four equipment companies: Tokyo Electron, Advantest, Disco, and Screen Holdings. Additionally, there is the general trading company Mitsubishi Corporation. At that time, Goldman Sachs chose stocks with high liquidity that had shown good stock price trends from the beginning of the year and over the past 12 months, and had not recorded a loss since 2020. In its report, Goldman Sachs analyzed the factors influencing stock price fluctuations since March 2020, emphasizing that while the revenue of the Magnificent Seven in the U.S. increased, most of the Samurai Seven saw improvements in profit margins and price-to-earnings ratios. Six months have passed since the selection of the Samurai Seven. What is the current performance of these stocks? To conclude, among the seven stocks, six months later, they are in positive territory.

The only stock I am holding is the semiconductor manufacturing equipment company, Disco. Goldman Sachs compared the stock prices on February 16, the trading day just before their report, and on August 19, six months later. Let’s take a look at the seven stocks one by one. Toyota, the number one company by market capitalization on the Tokyo Stock Exchange, saw a decline of 22.7% during this period. In the second quarter of this year, Toyota recorded an operating profit of 1 trillion 384 billion yen, a 17% increase compared to the previous year, achieving the largest second-quarter performance in history. The rise in hybrid car sales contributed to this success, along with the positive effects of the yen depreciation. However, they were hindered by issues related to quality certification. Recently, the value of the yen has been rising, which could gradually weaken the effects of the yen depreciation. Another major automaker listed alongside Toyota in the Samurai 7 is Subaru. Despite strong sales in the U.S. leading to growth in revenue and operating profit, its stock price dropped by 18.48% over the past six months. The future growth potential in electric vehicles and other areas remains a key focus.

The analysis suggests that the reason for the decline is significant. Tokyo Electron, one of the world's top four semiconductor equipment companies, has seen its stock drop by 20.64% over the past six months. Despite this, Tokyo Electron's revenue and operating profit have shown strong performance. Following major investment plans from semiconductor companies related to generative AI, the equipment industry is benefiting. However, from late last month to early this month, there has been a notable decline in U.S. tech stocks like NVIDIA, causing a substantial drop in share prices that has hindered recovery. In contrast, Disco, a semiconductor equipment company, is the only stock that has risen over the past six months, increasing by 3.93%. Disco's strength lies in its cutting and slicing technology for wafers, which is highly regarded. Unlike Tokyo Electron, which deals with front-end equipment that draws circuits on wafers, Disco focuses on back-end processes in the semiconductor industry.

You can immediately feel the recovery of the market due to the improvement in factory operation rates. Advantest is a company that provides equipment for memory testing. With the increase in demand for high-performance memory driven by generative AI, their profits have been rising. However, over the past six months, their stock price has fallen by 7.07%. Screen Holdings has strengths in semiconductor cleaning equipment. The demand for cleaning equipment used in RAM for generative AI servers remains robust, leading to strong performance. Nevertheless, their stock price has plummeted by 39.77% over the past six months. Lastly, let's look at Mitsubishi Corporation. Mitsubishi Corporation is known as one of the top five trading companies in Japan, which Warren Buffett, the master of investment, has invested in. Over the past six months, Mitsubishi Corporation has experienced a decline of 0.72%, showing relatively stable performance. However, following the record drop in the Nikkei index on the 5th, we can see a market rebound phase, with noticeable rises in Tokyo Electron and Screen Holdings.

Screen Holdings rose to 24.56, while Tokyo Electron also saw an increase to 27.20. There is an analysis suggesting that Screen Holdings has low sensitivity to exchange rates, providing resistance against yen appreciation. Consequently, following the sharp decline in Japanese stocks, the resilience against yen strength is becoming a significant factor in stock selection. 

Now, let's examine the recent movements of the yen. Recently, global hedge funds and other speculative forces have projected a strong yen, leading to net purchases of the yen for the first time in three years and five months. According to the report released by the U.S. Commodity Futures Trading Commission on the 16th, non-commercial sectors, such as hedge funds and speculators, had net purchases of the yen amounting to approximately 280 billion yen, or 23,104 contracts, as of the 13th. This marks the first time hedge funds have shifted to net purchases of the yen since March 9, 2021, approximately three years and five months ago. The yen purchases totaled 8,711 contracts, the highest since October 2016.

After that, the most significant occurrence was a sale of 6,399 contracts, which was the lowest since March of last year. As the outlook for the yen's depreciation retreated, there are analyses suggesting that speculators are selling the yen. The CFTC data reflects the scale of yen carry trades, where the yen is borrowed and sold in the foreign exchange market to buy dollars and other currencies. Just over a month ago, hedge funds were massively selling the yen in a bet on its depreciation. As of the 2nd of last month, the yen sales by hedge funds reached 184,223 contracts, marking the second highest on record. This was anticipated because the Bank of Japan, Japan's central bank, was maintaining its ultra-low interest rate policy, allowing for profit through dollar selling and yen buying transactions due to the interest rate differential between the U.S. and Japan. The atmosphere changed when, on the 11th and 12th of last month, the Japanese government and the Bank of Japan initiated large-scale yen buying interventions in response to the yen's sharp decline. The Japanese Ministry of Finance began this intervention from June 27 to July.

As of the 29th, it was announced on the 31st of last month that a market intervention of 5 trillion 534 billion yen had been carried out. Additionally, the Bank of Japan raised the benchmark interest rate by 0.25% on the 31st of last month, accelerating the buying of yen. The yen-dollar exchange rate, which was 161 yen per dollar on the 11th of last month, dropped to 141 yen per dollar at one point on the 5th of this month, showing a strong appreciation of the yen. However, the recent trend of yen appreciation has somewhat slowed down, fluctuating around 145 yen per dollar this week. Consequently, the DK index has started to rise again. Nevertheless, there is still no indication that speculative forces have resumed carry trading. Previously, the liquidation of carry trades was identified as a cause of the sharp stock market decline earlier this month, and in that regard, the fact that yen carry trading has not expanded again can be seen as a relief. If the depreciation of the yen reoccurs, it will deepen the concerns of the Bank of Japan. While there is a high possibility that stock prices will rise, the implications of yen depreciation are concerning.

This is due to concerns about rising prices. Following the significant drop in the Nikkei index, Uchida Shinichi, Deputy Governor of the Bank of Japan, reassured the market, stating that interest rates cannot be raised in an unstable market. However, even if the market stabilizes, it remains uncertain whether interest rate hikes can be proposed quickly. First of all, Prime Minister Fumio Kishida, who is also the ruling Liberal Democratic Party president, unexpectedly declared that he would not run in the party's presidential election in September, making it difficult to shift monetary policy during this political season. Since the Bank of Japan's decision on interest rates at the monetary policy meetings in September or October could be politically interpreted, there is a high likelihood that their flexibility will be limited. If the market maintains stability, when might the Bank of Japan consider raising interest rates again? The market is speculating on the possibilities of December or January next year. I hope this has helped you understand the trends in the Japanese economy.

It would be great. This was Kim Il-kyu from Tokyo Now.

골드만삭스의 ‘사무라이 7’ 선정 6개월 후 성적표 l 김일규의 도쿄나우

한경 특파원들이 전하는 잠들지 않는 투자 뉴스