June 20, 2014 5:56 am JST

Japan stocks rise despite stronger yen

TOKYO -- Japanese stocks moved higher Thursday following rallies in the U.S. on dovish signals from the Federal Reserve after its monthly policy-setting meeting the day before.

     The Nikkei Stock Average gained 245 points in a day of heavier trading to close at 15,361, a high not seen in four and a half months.

     Japanese shares, including export-driven companies, broke with the usual trend. They rose despite the previous day's drop in yields on 10-year Treasurys, a decline that had helped the yen strengthen to the upper 101 range against the greenback.

     Typically, a drop in U.S. long-term interest rates brings them closer to those in Japan. Investors are prompted to sell dollars and buy yen, pushing Japanese shares down.

     Investors had in fact been dumping Japanese stocks and snapping up American shares since the start of the year when speculation increased that the Fed would keep its easing policies in place for quite some time.

     A change came in May, when investors grew more confident in a weaker-than-feared impact from Japan's April 1 consumption tax hike. Demand for Japanese stocks strengthened, helped by buying from such investors as pension funds. The traditional correlation between U.S. interest rates, the yen and Japanese share prices was clearly fading.

     Last year, when yen depreciation and increases in Japanese stock prices did move in conjunction with one another, investors favored mainly shares in such export-oriented companies as carmakers.

     But companies dependent on domestic demand have proved to be some of the current year's performers, including banks, food producers and railway operators. For this, they can thank hopes that Japan is finally freeing itself from decades of crippling deflation.

     Investors are also being drawn to Japanese stocks because many are down from the start of the year and seem a better deal than pricier American and European shares.

     Many market watchers see an eventual climb in U.S. long-term interest rates triggering a return to the norm of Japanese stocks rising on a soft yen. Some look forward to the possibility of gains by both export-driven and domestic-demand-reliant companies.