BlackRock Cuts Japanese Stocks, Potential BOJ Policy Shift Could Cause Global Spillover
By As Japan prepares to appoint a new governor for the Bank of Japan (BOJ), the world’s largest asset manager, BlackRock, has cut its Japanese stocks to “underweight” due to policy uncertainty and a deteriorating economic environment.[0] This comes after the potential of a BOJ policy shift has been discussed, which could include scrapping its yield-curve control program and potentially cause a rise in global yields.[1]
JPMorgan Chase & Co analyst Benjamin Shakil believes this trend of central banks tightening their monetary policies, as seen with the Federal Reserve and European Central Bank, is set to continue.[2] What’s more, a BOJ policy change could have a gravitational pull on developed market bond yields, causing a global spillover and increasing the risk of higher yields dampening global risk sentiment.[3] Japan still holds more than $1 trillion of US Treasuries, as well as large amounts of bonds from France and the UK, which further heightens this risk.[2]
Kazuo Ueda, the newly-nominated governor of the BOJ, is set to face an intense market demand for change as soon as he assumes control of the BOJ.[4] The challenge for him is to navigate the policy change without bringing about market turmoil, and it remains to be seen if a soft landing can be achieved.
In the meantime, BlackRock suggests investors tactically prefer short-term government bonds and credit for income, as well as emerging market stocks over developed market equities.[1]
0. “The week in investor relations: BlackRock pulls the plug on Japan, activist investments rise and SEC tightens grip on …” IR Magazine, 16 Feb. 2023, https://www.irmagazine.com/regulation/week-investor-relations-blackrock-pulls-plug-japan-activist-investments-rise-and-sec
1. “Preparing For Japan Central Bank Shift” Seeking Alpha, 13 Feb. 2023, https://seekingalpha.com/article/4577813-preparing-japan-central-bank-shift
2. “The global knock-on from Japan’s policy change” FXStreet, 14 Feb. 2023, https://www.fxstreet.com/analysis/the-global-knock-on-from-japans-policy-change-202302141023
3. “BlackRock downgrades Japan stocks on possible monetary policy shift” CNBC, 15 Feb. 2023, https://www.cnbc.com/2023/02/15/blackrock-downgrades-japan-stocks-on-possible-monetary-policy-shift.html
4. “Chatter of a potential BOJ surprise at Kuroda’s final meeting March 9/10 – help out Ueda” ForexLive, 20 Feb. 2023, https://www.forexlive.com/centralbank/chatter-of-a-potential-boj-surprise-at-kurodas-final-meeting-march-910-help-out-ueda-20230220
