Japanese equities quantitative strategy: We expect return of reverse lead-lag effect in case of sporadic sharp yen appreciation

We have updated our past alpha strategies in light of topics such as coordinated Japan-US intervention in the FX market and changes in retail investors' appetite for AI-related stocks. (1) Even among companies with strong earnings, those heavily affected by exchange rates are less likely to see subsequent share price gains. (2) There is a reverse lead-lag effect whereby yen appreciation one or two quarters earlier has a positive effect on external demand-oriented stocks in the present. Although this effect has disappeared this year, we expect it to re-emerge if the yen strengthens sporadically. (3) Over the long term, a strategy of following nonresident investors' stock-specific buying and selling has been highly effective. This strategy has lost its effectiveness this year, but conditions are becoming more favorable for its revival. Upward revisions to earnings forecasts are more likely to lead to share price gains when FX impact is small. We expect the reverse lead-lag effect between