Market News

Japan's Nikkei 225 (^N225) Index momentarily reached a 33-year high on Monday before pulling back. Yahoo Finance Senior Reporter Jared Blikre monitors the action arising in Japan's stock market, eyeing various stock performances under a weakening Japanese yen.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

BRAD SMITH: We also got to stay in Japan. Japan's Nikkei 225 touchdown over 30-year highs before reversing course ahead of the market close in Tokyo. The surge was led by strong earnings from Tokio Marine Holdings and news that Panasonic is considering listing its auto-related business.

Japanese stocks have been jumping for the last month and some weakness in the yen. Now, investors are in wait and see mode as holidays are expected to slow things down in Japan as well as the States. Here with more on the moves in Japan's market, we've got our very own Jared Blikre. Hey, Jared.

JARED BLIKRE: Hey, Brad. Thank you. And let's take a look at what's been happening in Japan. By the way, this is our world view here. You're going to see Tokyo closed the day down 6/10%. But as you said, that was just after it touched a 30 plus year high. And this chart goes back to the late '80s. And a lot of people here are going to be too young to remember, but there was a huge japanification meme that was going on around the world.

I think the Japanese real estate market was top ticked when they bought our Pebble Beach over in California. But if you take a look at this, this is a 30-year consolidation. I'm just waiting for a multi-year handle and then maybe we can see the break upwards. I say that a little bit tongue in cheek when you have a pattern that has gone on this long. It can take forever to play out.

But just look at the results that we've seen this year, up almost 28% And this really hits home the interest rate differentials. You were just showing a chart a minute ago about the Japanese 10-year. That has traded to a high of 1%. Meanwhile in the US, we are at 4 and 1/2%. So that explains a lot of the interest-- the interest rate differentials explains a lot of why the money has been rushing into the US to take advantage of higher yields.

But now that Japan's yields are rising for the first time towards 1% in forever, there's competition. And so you don't have those dollar flows into the United States Treasury market and the currency itself. That's a side story. Here's what I want to look at right now. These are Japanese conglomerates. I don't oftentimes take a look at the Japanese stock market. But I think it's interesting to look at some of these names on a very long time frame.

Here's a max chart of Hitachi, for instance. You can see this was under water for 20 years and has only recently I believe this year climbed back into the green. Take another issue here, Mitsui. This is a stock that was stuck in a very tight trading range for over a decade. Tight is a relative basis or a relative term here. But you can see it just recently broke out to the upside.

Here's another one. And you'll notice that Japanese stocks are named by numbers instead of letters. But you'll see Mizuho Financial, this chart, they peaked in the global financial crisis, never even made it back to about 20% of the losses. This reminds me of Citigroup or a European Bank. So there are a lot of parallels throughout the world. But a lot of this has to do with what's playing out in the currency market.

And I'm going to show you a heat map of the Japanese currency versus a bunch of other currencies around the world. Anything in Green means the Japanese yen is stronger. So the only green spot that we're seeing right now is the yen versus the Argentine peso. There's a big election over the weekend. We don't need to get into that. But there are they have a lot of trouble with inflation.

And so I think it's notable that the yen has strengthened only against this one currency, which is worse. Then you take a look at to the downside, it's lost ground. The yen has lost 22% to the Mexican peso, 18.9% to Brazil. Even the stalwart over in Europe, the-- it's going to come to him now-- the Swiss, the Swiss Franc down 15%.

So a lot of this pot that's being stirred up here has to do with the interest rate differentials that I've talked about. But there has been no grand meeting of the minds here where interest rates are going to have been allowed to float freely. And when that happens, I think there's going to be a reckoning in the Japanese debt market. But that's a topic for a later date, guys.

SEANA SMITH: And as well want to dig in with you. That would be you in just a bit. All right. Jared Blikre, thanks so much for breaking all that down for us.