- Investment Director
- About Us
- 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.
Should investors prepare for a rate hike in Japan?Continue reading
The US economy in 2024: A tale of transitionContinue reading
You snooze, you may lose: The case for bondsContinue reading
Fed not yet willing to declare victory on inflationContinue reading
US regional banking sector updateContinue reading
Should investors prepare for a rate hike in Japan?
Investment Directors Marco Giordano and Masahiko Loo discuss why a rate rise in Japan may occur sooner than markets expect.
The US economy in 2024: A tale of transition
Our US macro expert sees changes in consumer and investment spending in the coming year, and highlights what she'll be watching for in terms of policy, politics, and profit margins.
You snooze, you may lose: The case for bonds
There are signs the Federal Reserve's rate-hiking cycle may be nearing an end, but some uncertainty remains. With that in mind, Multi-Asset Strategist Nanette Abuhoff Jacobson considers the timing of a move from cash to bonds.
Fed not yet willing to declare victory on inflation
We think the Fed is done raising rates for this cycle, despite the likelihood that they are being overly optimistic about inflation. Read to find out why.
US regional banking sector update
We explore how banking regulation and legislation could impact US regional banks, including highlighting the potential for M&A activity and for dispersion to drive long/short opportunities.
Financials amid rising dispersion
We explore why we believe dispersion across stocks, sectors, and geographies is supporting numerous secular themes in long/short investing in financials.
After the US downgrade: Thoughts on public debt, bond yields, and Fed policy
In the wake of the US debt downgrade by Fitch, Macro Strategist Juhi Dhawan explains what worries her most about the nation's debt situation and considers the impact on the term premium and the Fed’s plans.
Why cash won’t cut it for long: The case for bonds
Global Investment and Multi-Asset Strategist Nanette Abuhoff Jacobson and Investment Strategy Analyst Patrick Wattiau explore the relative potential benefits of bonds versus cash.
How to interpret the Bank of Japan’s latest policy shift
We analyse the wide-ranging investment implications of the Bank of Japan's latest policy shift.
Chair Powell maintains optionality
Fixed Income Analyst Caroline Casavant shares what she thinks matters most for investors in light of the latest interest-rate hike from the Fed.
Fed skips along the path to a pause
Jeremy Forster analyzes the Federal Reserve's decision to pause its interest-rate hiking cycle, explains why he believes it could be an extended pause, and shares the potential implications for fixed income markets.