Analytical Perspective on Correlation Between Nikkei225 & GBP

7月19日

By Eric Lee, Sales Director of Phillip Nova

Substantial Upward Trends in GBP/JPY and Nikkei 225 from 2020 to 2024

Over the past 4 years, from 2020 to 2024, both the GBP/JPY exchange rate and the Nikkei
225 index have shown substantial upward trends. The chart below indicates a close
correlation between these two financial indicators, particularly from late 2022 to mid2024. The GBP/JPY (in blue) and the Nikkei 225 (in red) have both risen significantly over
the observed period, with the Nikkei 225 reaching a recent peak around 40,500 and the
GBP/JPY exchange rate climbing to approximately 203.886.

Strong Correlation Between GBP/JPY and Nikkei 225 Movements

There are notable periods where the movements of the GBP/JPY and the Nikkei 225 are
closely aligned, suggesting a strong correlation between the two. This is particularly
evident from late 2022 onwards, where both indices exhibit synchronized peaks and
troughs. The Nikkei 225 has experienced periods of high volatility, with sharp rises and
falls, particularly in 2023. According to Nikkei Asia, one significant factor contributing to
the rise in Japanese stocks is the influx of foreign investment, notably $51 billion led by
the U.K. This influx has boosted the Nikkei 225, highlighting the importance of foreign
capital in driving market performance

asia.nikkei.com/Business/Markets/Japan-stocks-boosted-by-51bn-in-foreigncash-led-by-U.K

Impact of GBP/JPY Exchange Rate on Japanese Equity Investments

A strong GBP/JPY rate can indicate increased purchasing power for British investors,
enabling them to invest more heavily in Japanese equities. The recent surge in the Nikkei
225 aligns with the period of increased foreign investment, as highlighted by the $51
billion influx led by U.K. investors. Currency strength often reflects broader economic
sentiment. A rising GBP/JPY rate can signal confidence in the U.K. economy,
encouraging investment in higher-yielding assets like Japanese stocks. Conversely, a
weaker JPY can make Japanese exports more competitive, boosting corporate profits
and positively impacting the Nikkei 225. Fluctuations in the GBP/JPY rate can influence
global risk appetite. A stronger GBP against the JPY might indicate a shift towards riskier
assets, including equities in robust markets like Japan.



UK Consumer Confidence and Its Correlation to GBP and Nikkei 225

According to data from GfK, the Consumer Confidence indicator in the UK rose to -14 in
June 2024 from -17 in May, marking the third consecutive month of improvement and
reaching its highest level since November 2021, surpassing forecasts of -16. That may
explain the strength in GBP and its correlation to Nikkei225 as well.

Global Financial Interconnectivity and Strategic Insights for Traders

In conclusion, the global financial market is highly interconnected. The influx of foreign
capital, particularly from U.K., has significantly boosted Japanese stocks, driving
Nikkei225 to new heights. Thus, when trading a stock index such as Nikkei225, traders
should consider the influence of currency movements and the dynamics the economic
performance of related countries can have in providing valuable insights in their
strategic decision making

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