Japanese stocks have quickly run up to 33-year highs this year, but this hasn’t been enough to raise their presence in the world’s leading indexes, with analysts expecting more companies will be pushed out as the weak yen undermines their performance in dollar terms.

MSCI Inc.’s quarterly review to be announced on Aug. 10 will probably result in a net seven Japanese stocks being deleted from its indexes, according to estimates from Daiwa Securities Group Inc. That would be the biggest exclusion since May 2022. SMBC Nikko Securities Inc. forecasts the deletion of two companies and the addition of one.

With a total of $13.7 trillion of assets under management benchmarked to MSCI indexes globally as of the end of 2022, according to the index provider, the removal of more shares from the MSCI would lead to selling pressure from index-linked funds.

This in turn may dampen buying of Japanese equities, which have reached the highest since the 1990s in recent months due to demand from foreign investors amid signs inflation is becoming entrenched, the economic recovery from the pandemic, and stock exchange reforms.

A significant number of companies may be removed in the review because the weaker yen has put a dent in the strong performance of Japanese stocks, said Junichi Hashimoto, a senior quantitative analyst at Daiwa.

The yen has depreciated by more than 30% against the dollar from pre-pandemic days as the Bank of Japan stuck to its ultra-loose monetary policy while other major central banks tightened rates. In that period, the number of stocks included in MSCI’s benchmarks has dropped about 25%, according to Daiwa.

The Topix index increased 13% in the three months to the end of July, exceeding a 10% gain in the S&P 500. However, in dollar terms, the Topix only advanced 8.1%.

The presence of Japanese stocks in the MSCI is fading, said Keiichi Ito, chief quant strategist at SMBC Nikko. US tech giants’ solid share performance has made Japan’s relative market capitalization even smaller, Ito said. Japanese companies have been largely unresponsive to shareholder pressure to improve and their valuations haven’t grown as much as some global companies, he said.

Modest gains in stocks aren’t going to be enough to push index providers to suddenly add them to their gauges, according to Ito. That may change going forward as companies come under more scrutiny from shareholders, he said.

Companies that will be potentially ousted from the MSCI include drugmaker Nippon Shinyaku Co. and electronics manufacturer Sharp Corp., as well as Nisshin Seifun Group Inc., NGK Insulators Ltd., Lixil Corp. and CyberAgent Inc., while fast-food chain Zensho Holdings Co. will be added, according to Daiwa. SMBC Nikko also expects Zensho to be included, while Sharp and Nippon Shinyaku are likely to be removed.