Snap up more Japanese stocks, ratchet up shorts on government debt and keep buying the yen: these are some of the most popular calls from big-name money managers ahead of a central bank meeting that may end the world’s last experiment with negative interest rates.
Speculation that the Bank of Japan will raise interest rates on Tuesday intensified after the nation’s largest union group announced stronger-than-expected annual wage deals. The stakes will be enormous, changing market dynamics at a time when the nation’s blue-chip share gauge is towering near its record high, bond yields are creeping back up and the weak currency is boosting exporters.
BlackRock Inc. and Man Group Plc. are among those seeing room for further gains in equities as economic vitality returns. RBC BlueBay Asset Management has made shorting 10-year government bonds its biggest macro bet, while abrdn plc and Robeco are placing bullish yen wagers.
“This is a momentous event,” said Yue Bamba, head of Japan active investments at BlackRock, who expects rate increases to be gradual, keeping monetary conditions accommodative and supportive of stocks. “The drivers of growth are varied, broad and durable. I think we’re a long way away from things being fully priced in.”
The outlook for monetary policy will define future capital flows after billions of dollars have poured in over the past year. The BOJ’s short-term policy rate may rise toward 0.25% in late 2024 from minus 0.1%, overnight-indexed swaps show.
Stocks Boom
The Nikkei 225’s rally has stalled since breaching 40,000 for the first-time ever earlier this month. The recent breather has failed to deter investors, though they are now more focused on stock picking.
“We’re investing more in insurers than banks as we prefer the higher risk-reward and recent governance reforms,” said Michiko Sakai, portfolio manager at JPMorgan Asset Management in Tokyo. “If the BOJ continuously hikes rates along with solid economic growth, then the lenders will move quite positively,” she said.
A gauge of banks on the Topix has surged more than 70% since December 2022, when the BOJ surprised markets with a tweak to its yield-curve-control policy. Investors see tighter monetary policy boosting profitability for lenders, whose interest income had been crushed by decades of ultra-low rates.
What Bloomberg Strategists Say …
The rally in Japanese equities has been driven by the yen’s weakness and gains in the S&P 500, according to a Bloomberg analysis. With around half of the companies in the Topix trading at a price-to-book ratio below one, there remains substantial room for improvement.
Mary Nicola, Markets Live strategist
Read the full article here by Ruth Carson, Winnie Hsu, Yasutaka Tamura of Bloomberg News, Advisor Perspectives
