Japan has seen its own version of the great rotation trade on Wall Street, with investors shifting more attention from big tech stocks that feature in the 225-issue Nikkei average to the much larger universe of small- to midcap companies.
The risk now is that it may reverse, with strategists increasingly concerned that the prospect of rising interest rates in Japan will weigh on smaller businesses that are vulnerable to rising borrowing costs.
The Tokyo Stock Exchange's Growth Market 250 Index, formerly known as the Mothers Index, has climbed more than 10% since the start of June, at the same time as U.S. small-cap stocks rallied on expectations the Federal Reserve would lower rates. In Japan though, the longer-term picture is for higher rates from its central bank.