Yen could weigh further on the TOPIX

We argued last year that the relative strength of Japan’s stock market mostly reflected the weak yen rather than a fundamental transformation of its corporate sector. Developments since then suggest that we were right and with the yen set, in our view, to rally over the next couple of years, we expect the TOPIX to continue to lag the S&P 500. And while returns from Japan’s equities could be better when considered in US dollars, we suspect they’ll be still worse than those from US equities.