Japan Portfolio Strategy Trigger warnings Lessons from the July August 2024 sell off

Portfolio Strategy Research 27 July 2026 | 3:39PM JST

Trigger warnings - Lessons from the July-August 2024 sell-off

It has been two years since TOPIX experienced its -24% peak-to-trough correction Bruce Kirk, CFA | from 11 July - 5 August 2024, triggered in part by USDJPY’s rapid move from ¥162 to Goldman Sachs Japan Co., Ltd.

¥143 during the same period. In recent months, persistent yen weakness and Julius Chan | speculation about various government measures to strengthen the Japanese Goldman Sachs Japan Co., Ltd. currency (LINK) have prompted a re-focus on the risks of another 2024-style sell-off. We have therefore analyzed the chain of events that caused this major correction in the Japanese equities market, and then compared aspects of the FX and equities positioning in 2024 with the current set-up. Our conclusions are as follows:

n July-August 2024 was a ‘perfect storm‘ of yen positive factors, magnified by extended risk-on Japanese equities positioning: In early July 2024, USDJPY was close to ¥162, but had fallen -11% to ¥143 by early August. This volatility spike in the FX markets caused a second-derivative sell-off wave in Japanese equities from all-time-high levels. The drawdown was particularly acute in Exporters and Financials due to the prevailing macro environment. n The macro backdrop looks less yen supportive now versus 2024: Based on methods used by our FX Strategy Team to measure yen exposures ahead of the July-August 2024 event (LINK), the current positioning does look extended. However, a possible monetary policy shift in the US, and concerns about Japanese fiscal sustainability (LINK), suggest USDJPY could remain stronger for longer. n But the equities positioning looks more vulnerable to a major correction versus 2 years ago: TOPIX and Nikkei are now +37% and +53% higher respectively versus 11 July 2024 levels, and data from GS Prime Services suggest that HF gross and net exposures to Japan as a percentage of the total GS Prime book are both above the 98th percentile (5 year). Outstanding margin transaction buys are also +35% higher versus July 2024 levels. n We recommend a more FX-neutral stance while speculation concerning yen intervention and/or the repatriation of overseas funds remains elevated: For investors concerned about the potential impact of a rapid yen move on Japanese equities, we present four ideas including our GS Japan Yen Strengthening basket (FSJPFXS1) and our GS Japan Domestics basket (GSJPDOMS).

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Goldman Sachs Japan Portfolio Strategy

Executive summary - what are the biggest near-term risks for the Japanese equities market?

We remain constructive on the mid-to-long-term outlook for the Japanese equities market, and have recently raised our 3M, 6M and 12M TOPIX targets (Japan Weekly Kickstart: Revising 12M TOPIX target to 4500 to reflect FX assumption changes, 24 July 2026). Near-term seasonality suggests that the market could remain volatile over the summer months, but we still expect TOPIX to gradually move higher into the end of the year.

Our view is that a combination of strong earnings momentum, meaningful exposure to the global AI-growth thematic, a structurally weak yen, and a continued top down focus on index-level ROE improvements via Corporate Governance reform measures, make Japan an extremely attractive equities market.

However, persistent yen weakness and speculation about various government plans to strengthen the Japanese currency (LINK) have re-focused investor attention on the risks of another July-August 2024-style sell-off. During this correction, TOPIX experienced a peak-to-trough fall from 11 July - 5 August 2024, triggered in part by USDJPY’s rapid move from ¥162 to ¥143 during this period (Exhibit 1).

Exhibit 1: USDJPY and US/JP 2Y yield spreads in 2024 Exhibit 2: Top five and Bottom five TOPIX 17 sector performance during market correction

USDJPY (lhs) US2Y JP2Y yield spread (rhs) Btm 5 Sectors Top 5 TOPIX

170 July 11: Weak US 500 105 July 11, 12: Yen CPI intervention June 31: BOJ…