A man walks past an electronic quotation board showing the closing number of the Nikkei Stock Average Index at the Tokyo Stock Exchange in Tokyo on October 18, 2022.
Kazuhiro Nogi | afp | beautiful pictures
Black stonesworld’s largest asset manager, cuts Japanese stocks to “underweight” – as Japan prepares appointment a new governor to lead its central bank.
A change in leadership could lead to a hawkish axis for Bank of Japanhas maintained an extremely dovish stance while its global peers move to sharply raise interest rates to tame rising inflation.
“We downgraded Japanese stocks due to policy uncertainty and worsening economic environment,” BlackRock’s research arm said on Monday, before the government’s submission of its banking options. central government to parliament. It also said the possibility that the central bank could cancel its yield-curve control program would push global yields higher and reduce risk appetite.
“Monetary policy uncertainty and the sensitivity of the Japanese economy to a slowdown in other major economies prompted the shift,” the note said.
The recent drop in earnings growth estimates suggests the Japanese economy may slow down, BlackRock added.
On Tuesday, the Japanese economy reported a 0.6% expansion in the last quarter of 2022 on an annual basis. Although it technically prevented a recession, the recovery was smaller than expected.
“We think a policy change could come at any time – remove [YCC] Risk caps push global yields higher and reduce risk appetite,” the note said.
In December, global yields spiked after Bank of Japan widen its yield curve tolerance range from 25 basis points above and below 0% to 50 basis points.
Yields on US Treasuries jumped, with 10-year notes and 30-year notes up 7 and 8 basis points, respectively. European government bonds also sold off, including 10-year German bonds.
The Japanese flag flutters over the Bank of Japan (BoJ) headquarters building (bottom) in Tokyo on April 27, 2022.
Kazuhiro Nogi | afp | beautiful pictures
Japanese core consumer price index hit a 41-year high in December. The country is scheduled to release its inflation print for January on February 24.
“We think that will pave the way for the BOJ to rollback policies that by their own measures may have achieved their goal: to promote sustained increases in inflation,” said BlackRock strategists. towards the 2% target underpinned by wage growth.” note.
“Regardless of who takes over, we think ongoing wage and inflation dynamics means the current policy stance may be on track,” they wrote.
different scenarios
BlackRock lays out multiple scenarios for a hawkish axis.
One possibility is that the Bank of Japan continues to extend its tolerance beyond 50 basis points. BlackRock noted that the yield on 10-year Japanese government bonds has crossed its limit. It was ultimately unchanged at 0.5% – the upper ceiling of the band.
Another possibility is that the Bank of Japan will abandon yield curve control altogether.
“That would push yields higher and cause interest rate volatility,” BlackRock said, adding that scrapping the program would put the central bank “on track to stop buying bonds.” . The company notes that the BOJ owns more than half of the JGBs in circulation.
Nikkei Separately reported earlier this month that the central bank bought 23.7 trillion yen ($182 billion) of JGB in January, a new record high.
spread globally
BlackRock added that the change in monetary policy by the Bank of Japan will increase the chances of global spillover.
“The attraction between developed-market bond yields increases the risk of global spillovers, in our view – especially if Japanese investors cut their large foreign bond holdings. them,” it added that rising global yields will weigh on risk sentiment around the world.
“The policy shift could put the BOJ on track with the larger tendency of major central banks to raise yields rather than reduce them,” it said.
