- Investment Director
- Insights
- Sustainability
- About Us
- Careers
- My Account
The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
As discussed below, the upcoming “changing of the guard” at the Bank of Japan (BOJ) could have some meaningful investment implications — and not just for Japanese assets — of which global allocators should be mindful.
Kazuo Ueda has been officially nominated to take the helm of Japan’s central bank when the incumbent BOJ governor, Haruhiko Kuroda, steps down in April 2023. Ueda will be accompanied by two deputy nominees: Shinichi Uchida, the BOJ’s current executive director, and Ryozo Himino, the former chief regulator for the Financial Services Agency (FSA) of Japan.
Ueda’s nomination came as a surprise to many observers after much prior speculation had focused on “Kuroda continuity” candidate Masayoshi Amamiya. While the Amamiya headlines provoked brief, dramatic near-term moves in the Japanese yen, the longer-term impacts of a new trio navigating the BOJ’s nine-member board could be greater and more far-reaching, especially given that Japan has been an anchor of sorts for the global fixed income markets for some time now.
Ueda and his deputies portray an overall impression of balance, with the soon-to-be BOJ governor poised to take the central bank’s reins and perhaps mimic the stance of Christine Lagarde, who began her tenure at the European Central Bank (ECB) with a promise to be neither a hawk nor a dove, but rather an “owl” (i.e., wise and data-dependent). Time will tell. Also important will be:
The sustainability of Japan’s wage growth and inflation will be key indicators to monitor into the second half of 2023. We think the improving data momentum will persist and be the main trigger for further BOJ policy adjustments, including potential removal of both yield curve control (YCC) and negative-interest-rate policy (NIRP).
With markets counting down to Ueda’s assumption of the BOJ governorship in April, we believe there’s a reasonable likelihood of further increases in Japanese government bond (JGB) yields in the period ahead. If so, that could have implications for global risk assets, given the BOJ’s status as a perceived “last resort” provider of global liquidity.
While both the Swiss National Bank (SNB) and the Bank of Japan (BOJ) have been longtime adherents to NIRP, the Swiss franc (CHF) has reversed course and strengthened versus a broad basket of developed market currencies since the SNB dropped NIRP in mid-2022. Similarly, the BOJ’s potential abandonment of NIRP at some point could prompt a positive turn in market sentiment toward the Japanese currency in the coming months, considering that both Switzerland and Japan are among the world’s largest net-creditor nations.
We believe the tightening in global liquidity conditions that began last year represents a tectonic shift in the investment environment. So far, however, the BOJ has bucked the policy tightening trend pursued by other major central banks by being forced to aggressively step up its JGB purchases in defense of its self-imposed yield cap for long-term debt (Figure 1). While the BOJ’s asset purchases have continued to materially influence both global interest rates and risk assets in the short term, we believe its YCC policy is ultimately unsustainable.
Any BOJ policy changes from here would likely increase global rate and currency volatility, particularly any policy actions that might affect global capital flows — for example, anything related to Japanese investors’ overseas fixed income allocations and/or foreign investment into Japan.
Experts
URL References
Related Insights
Stay up to date with the latest market insights and our point of view.
Deep and diverse: Welcome to today’s Asia credit market
Two of our Singapore-based experts on Asia credit discuss the market's key features, along with how it's evolved and is likely to continue doing so.
SVB collapse: What are the implications?
Multi-Asset Strategist Supriya Menon shares her latest perspectives on the collapse of Silicon Valley Bank Financial Group (SVB) and the unfolding implications for investors. (Published 14 March 2023)
On to the next crisis: Glimpsing a post-SVB world
Amid the turmoil in the US banking sector, Global Investment Strategist Nanette Abuhoff Jacobson suggests investors consider pivoting to a “risk-management mode” that favors higher-quality assets. (Published 14 March 2023)
Understanding the US banking sector shake-up
Investment Communications Managers Jitu Naidu and Adam Norman detail recent US bank failures and analyze the implications. (Published 14 March 2023)
Tight money: Banks feeling the squeeze of higher rates
In this curated collection, some of our experts share their latest perspectives on the ongoing turmoil in the US banking sector and its potential implications.
What does the new macro regime mean for investors?
In this Q&A with two senior market practitioners we explore what the new macro regime means for investors and what to expect next.
India: Structural tailwinds for 2023 and beyond
Following his recent trip to India, Macro Strategist Tushar Poddar shares why he's very positive on the country's medium- to longer-term structural outlook.
Three themes that could define 2023 for income investors
With several macro crosscurrents at play, Portfolio Manager Peter Wilke suggests that income-oriented investors not lose sight of the “big picture” in their quest for yield.
Peak inflation, back to goldilocks? Not so fast
Portfolio Manager Nicholas Petrucelli explains why the market could be underestimating just how complex and volatile the global economic cycle is and details the implications for inflation.
February Fed meeting: Chair Powell strikes a more optimistic tone
The Fed just might still be able to engineer the hoped-for "soft landing" but it's not going to be easy, says Fixed Income Analyst Caroline Casavant.
Why global investors should watch the Bank of Japan
Macro Strategist John Butler explores why global investors should watch the Bank of Japan and what is likely to happen next.
URL References
Related Insights