Tokyo Bank Stocks vs. Treasury Yield

Chart : JCB 10-Year (red line) versus TOPIX Bank Index (RHS) (Source: Yahoo Finance; Avian Capital)

The chart above illustrates a generally positive correlation between the TOPIX Bank index versus the Japanese Govn’t 10-year Bond yield. When yield rose, Bank prices rallied, implying that higher rates are positive to banks’ profitability. As of 14th Aug 2024, Banks share prices were generally up 20 plus percent year-to-date (YTD) despite the fall in early August after Bank of Japan's (BOJ) decision to hike rate.

Chart: NEXT Funds Topix-17 Banks ETF (Source: Yahoo Finance; Avian Capital)

Both charts underscore the strong correlation of bank stocks to changes in monetary policy by the BOJ. While BOJ’s hike started a chain of reaction causing JPY to appreciate from Yen160/USD to 140 and a sharp decline in the Japanese market, we believe that this created an opportunity to weigh in on Bank stocks.