FX.co ★ Yen may rise despite geopolitical tensions

The stock market in Japan is again facing difficulties, discouraging traders. The stock market slumped because of geopolitical turmoil and the volatility of the national currency. According to Bloomberg, the record growth in the Japanese market slowed down under the current conditions.

Nevertheless, experts consider these difficulties to be temporary. They pay attention to stable fundamental indicators of the market. Impressive long-term prospects associated with the use of artificial intelligence (AI) are adding optimism to the situation.

Currency strategists at the Japanese division of Allianz Global Investors Fund look forward to the future of the country's stock market. Analysts suppose that the situation will be settled in the near future. By the end of 2024, experts anticipate a rise in the Japanese stock market and its return to peak performance.

Notably, just after the stock market reached its record highs, it started falling. At the same time, traders have almost lost hope for a speedy decline in the US interest rate. This, in turn, is boosting the US dollar and exerting pressure on the yen.

As a result, the Japanese national currency dropped to almost 155 against the USD. In this light, the country's monetary authorities announced a possible intervention.

All this has a negative effect on investors’ sentiment. They started to withdraw funds in favor of other safe-haven assets. The surging volatility of the yen and the geopolitical conflict in the Middle East added fuel to the fire.

Nevertheless, many analysts believe that in the second half of 2024, the shares of companies with low market capitalization focused on the domestic market, will grow. Note that these organizations benefit from the yen’s appreciation. In addition, small-cap firms have more experience in AI applications. Meanwhile, shares of chemical industry companies that import raw materials and pay for them with US dollars remain vulnerable because of the currency growth.