Japan's efforts to kickstart its long-moribund economy spurred a nearly three-year-long stock rally, but some see signs that's hit its limit.
Julius Baer has taken its call on the market to neutral from overweight, with its investment bank last week saying it was selling its currency-hedged position in Japanese stocks, reducing the exposure in the discretionary portfolios the private bank manages for institutions and individuals. A hedged position would seek to counter the effects of a weaker yen on investors with a different home currency; a U.S. dollar investor, for example, would see a dent to unhedged yen-denominated gains when they were converted to the home currency.
"After having been one of our favorite markets since Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda took the helm in 2012 and 2013 respectively, the market is up 50 percent. The move in the yen from 95 to 120 over the same period of time has created positive earnings revisions, increased competitiveness, and increased dividend payouts," Mark Matthews, head of research at Julius Baer, said in an email Friday.
But in a research note also released on Friday, he noted: "There is little political desire to weaken the currency further." The bank believes the U.S. dollar reached its peak at 125 yen and its 12-month target is for the yen to strengthen to 118 against the dollar. This will bring an end to the earnings boosts from forex.