BlackRock Cuts Japanese Stocks, Potential BOJ Policy Shift Could Cause Global Spillover
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. 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.
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. 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. 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.
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. 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.
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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
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