2024-03-22 15:41:24
[Tokyo, 22nd]- On March 19th, the Bank of Japan announced a complete revision of its monetary policy, including ending negative interest rates. What stood out was the reaction of stock prices.
Although this move seems at first glance contradictory to tightening measures, it is consistent with the evaluations of many investors I witnessed in London this month. He praises Japanese companies by saying, “You can see real changes.”
Regarding recent meetings with major companies, some said, “This was the first time they took notes,” and “I was able to hear concrete discussions about price increases.”
And the uncertainty of not knowing how BOJ will work, which was one of the few concerns they had, has been dispelled, at least for the time being.
One reason why the Bank of Japan’s recent policy changes appear to have been successful so far is, of course, that the Bank of Japan itself has worked hard to get the market to factor in the changes. Although the three-point set of lifting the negative interest rate policy, abolishing long-term and short-term interest rate manipulation (yield curve control, YCC), and suspending purchases of exchange-traded funds (ETFs) and real estate investment trusts (REITs) was completed in one fell swoop, the dollar The ¥150 level and the Nikkei Stock Average (.N225), opens new tab’s recovery to the 40,000 yen level look like a response to the “surprise easing.”
To put it simply, with the view that “this will keep the Bank of Japan quiet for the time being,” investors have become more likely to buy dollars and sell yen, where they can profit from interest rate differentials, and to buy Japanese stocks, which are showing a high rate of appreciation.
The phenomenon that led to a decline in uncertainty regarding the Bank of Japan’s monetary policy, leading to a rise in stock prices, was also seen around the holidays in May last year. The similarities with the present are noteworthy.
As a first step, looking back at the situation in early spring 2023, overseas investors’ interest in Japanese stocks had already increased significantly. The following three points were attracting attention as factors for “buying Japanese stocks.”
1) The first tally of the 2023 spring labor labor union was 3.80%, much higher than the previous year’s 2.14%, marking the first wage increase rate in 30 years. 2) At the end of March, the Tokyo Stock Exchange made an unusual move for a major stock market by requesting listed companies to manage their businesses with an awareness of capital costs and stock prices. 3) In China, there was a growing sense of anxiety about economic policy following the Shanghai lockdown in the spring of the previous year and the major reshuffle of the top leadership at the Communist Party Congress in the fall (General Secretary Xi Jinping was elected for the third time). These three pillars of “corporate governance reform, escaping deflation, and escaping China” were causing global investors to seriously consider buying Japanese stocks.
However, one thing that remained to be confirmed was the policy stance of Kazuo Ueda, who had just assumed the position of Governor of the Bank of Japan in April 2023. Based on his past statements, most people’s opinion was that he was “more hawkish than former Governor Haruhiko Kuroda.”
However, at the policy-making meeting held on April 28, which was President Ueda’s first meeting, he did not propose abolishing the YCC, which was seen by some as “now is an opportunity right after taking office,” and he gave the impression that he was committed to careful communication. Ta. The Nikkei Stock Average began to rise sharply from that day, rising approximately 18% in just over a month and a half until mid-June.
On the other hand, what do you think of this historic revision of the Bank of Japan’s policy? At first glance, this is the exact opposite of the decision made 11 months ago to maintain the status quo. However, they have one thing in common: they have largely removed the smoldering sense of uncertainty in the market. What is even more important is that, just as in April last year, foreign investors’ desire to buy Japanese stocks is still extremely strong.
At the beginning, I introduced an episode about an investor in London, but I would like to add one more thing. There is a lot of interest in the Small Investment Tax Exemption System (NISA). This is partly due to circumstances unique to the UK.
The model for NISA was the UK’s ISA (Individual Savings Account). Locally, the Sunak government had just submitted the budget proposal to parliament, including the creation of a new “home country stock quota” for the original ISA. As a result of this, investors in London were excited, saying, “The Japanese government should also create a quota for Japanese stocks in NISA,” and “Maybe Japan will be able to move more easily now that the UK has done this.” It was.
For global investors, the three pillars of “corporate governance reform, escaping deflation, and escaping China” continue to be themes that never tire of them. In fact, you could say that you can see a sense of acceleration.
First, the Financial Services Agency issued business improvement orders to four major non-life insurance companies, and in February 2024 called on them to sell cross-shareholdings, citing them as “hotbeds of cross-shareholding.”
Second, “Shunto”, which has spread widely among overseas investors, has a “wage increase rate of 5.28%” in the first calculation on March 15, 2024, which is an additional 1.48 points on last year’s wage increase rate. “increase” was observed.
Third, while China has continued to be on guard since last year that it is heading into Japan-style deflation, a new factor of uncertainty is about to be added: the return of the Trump administration.
What do you think about Japanese stocks for the time being, including the Bank of Japan’s recent moves? I would like to predict that the market’s upward trend will not break until June. 1) The Bank of Japan will most likely start hinting at additional interest rate hikes (Nomura economists expect it to occur in October) in its outlook report in July, and will maintain a dovish stance for the time being; 2) During the final financial results season, Ahead of the general shareholders’ meeting, companies are expected to accelerate announcements of governance reforms such as dissolving cross-holdings and strengthening shareholder returns, and 3) the income and consumption environment will enter a strong phase with spring wage increases and fixed tax cuts to be implemented in June. Can be mentioned.
On the other hand, attention must be paid to the risk that the Bank of Japan may decide to raise interest rates in earnest in the second half of the year. The message sent by Governor Ueda at the press conference on March 19th is important: “We will continue to conduct normal monetary policy.”
It was also made clear at the press conference that the Bank had not shifted to a “zero interest rate policy,” and the statement did not include a promise (forward guidance) not to raise interest rates again. “Normal monetary policy” is an inflation target of 2%, the same as in Europe and the United States.
Am I the only one who saw a sense of relief on Governor Ueda’s face at the press conference? It is assumed that Governor Ueda was already thinking about major policy revisions when he stated in the Diet on December 7 of last year that “the situation will be challenging from the end of the year to the beginning of the new year.” If we consider that the Bank of Japan has completed the transition to “normal monetary policy,” further rate hikes will not be so challenging.
Meanwhile, at a press conference after the Federal Open Market Committee (FOMC) meeting on March 20, Chairman Powell clarified that the policy of “cutting interest rates sometime this year” remains unchanged. The reversal of Japanese and US monetary policy, with the Bank of Japan increasing and the Federal Reserve decreasing, suggests the risk of a strong yen in the second half of the year.
Japanese stocks believe that the domestic demand sector, which is more resilient to the yen’s appreciation and will benefit from an end to domestic deflation, is more attractive than the external demand sector, which benefits from a weaker yen.
The Nikkei Stock Average is expected to reach a high of 43,000 yen this year, while TOPIX (.TOPX), opens new tab is expected to hit a new all-time high of 3,025.
Editing: Kazuhiko Tamaki
*This column was published on the Reuters Foreign Exchange Forum. It is written based on the author’s personal opinion.
*Yunosuke Ikeda is Nomura Securities’ chief strategist (managing director) who oversees Japan’s macro and equity investment strategies. Graduated from the University of Tokyo in 1995 and joined Nomura Research Institute in the same year. He has been in charge of macroeconomic research and has been in his current position since 2019. He is currently appearing regularly on TV Tokyo’s “Morning Satellite”.
*The content such as news, trading prices, data and other information in this document is provided by the columnist for your personal use only and is not provided for commercial purposes. there is no. The content of this document is not intended to solicit or induce investment activities, and it is not appropriate to use this content for the purpose of making decisions when trading or buying or selling. This content does not provide any investment, tax, legal, etc. advice that constitutes investment advice, nor does it make any recommendations regarding specific financial stocks, financial investments, or financial products. Use of this document is not intended to replace investment advice from a qualified investment professional. Although Reuters uses reasonable efforts to ensure the reliability of content, any views or opinions provided by columnists are their own and not those of Reuters.
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