Home » Even after the Bank of Japan lifts negative interest rates, $4 trillion of Japanese money goes overseas – MLIV survey – Bloomberg

Even after the Bank of Japan lifts negative interest rates, $4 trillion of Japanese money goes overseas – MLIV survey – Bloomberg

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Even after the Bank of Japan lifts negative interest rates, $4 trillion of Japanese money goes overseas – MLIV survey – Bloomberg

According to the results of the latest Bloomberg Markets Live (MLIV) Pulse survey, even if the Bank of Japan ends its negative interest rate policy at its monetary policy meeting on the 18th-19th, Japanese money is likely to remain overseas.

Of the 273 respondents, only about 40% said that the Bank of Japan’s first interest rate hike since 2007 would cause Japanese investors to sell overseas assets and repatriate the funds. This is good news for the US stock and bond markets.

Japan’s $4 Trillion to Stay Offshore for Now

Will the BOJ hike trigger a flood of Japanese selling of overseas assets?

If the Bank of Japan’s interest rate hikes are limited, the interest rate differential with other major countries will remain too large and Japanese investors may not be able to repatriate their funds. Japanese investors hold a massive $4.43 trillion (about 660 trillion yen) in foreign securities, allaying concerns that the Bank of Japan’s historic policy shift will have a serious global impact.

Hideo Shimomura, senior portfolio manager at Five Star Investment Trusts, said, “The movement of individual investors’ funds overseas through foreign bonds and stock investment trusts is large in terms of amounts, and this trend will change with the lifting of negative interest rates.” I can’t think of that,” he said.

Over the past decade or so, Japanese investment money has headed to the United States and the Cayman Islands in search of higher returns.

US and Cayman Islands Are Biggest Recipients of Japan Money

Cumulative net purchases since April 2013 (trillions of yen)

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Sources: Bloomberg, Japan’s balance-of-payments data

Japanese investors, who bought 18.9 trillion yen worth of foreign bonds in 2023, invested 3.5 trillion yen in foreign bonds in January and February of this year, even as expectations for a change in the Bank of Japan’s policy increased. Purchases of foreign stocks by individual investors have also increased in recent months.

The Bank of Japan will discuss the pros and cons of lifting the world‘s last negative interest rate policy at its monetary policy meeting to be held over the next two days, ending on the 19th. As of the 15th, the Overnight Index Swap (OIS), which reflects the market’s outlook on monetary policy, had factored in a 67% probability that negative interest rates would be lifted in March.

In the MLIV Pulse survey, 73% of respondents expected the Bank of Japan to raise short-term policy interest rates from the current -0.1% to 0.01-0.5% by the end of the year. Even if the Bank of Japan were to raise the interest rate to 0.5% by the end of 2024, it would be about 400 basis points (bp, 1bp = 0.01%) lower than the equivalent short-term interest rate in the United States, which would be disadvantageous for the yen, as shown by OIS. become.

The yen has depreciated by about 10% against the dollar over the past year, the most among 16 major currencies tracked by Bloomberg, as central banks outside Japan have aggressively tightened monetary policy to curb inflation. recorded a decline in price. Bank of Japan officials are waiting for signs that inflation will settle above 2%, supported by rising wages.

In the MLIV Pulse survey, 69% of respondents said there is a possibility that the yen will end the year between 120 and 140 yen to the dollar. Currency strategists expect the yen to appreciate by only a few percentage points.

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“Even if the yen rises on news of tightening with mild signals, it is likely to reverse quickly,” said Alan Raskin, chief international strategist at Deutsche Bank.

If the yen’s upside is limited, it will have a positive effect on Japanese stocks.

The Nikkei stock average has hit a record high this year due to the weak yen, accommodative monetary policy, and the Tokyo Stock Exchange’s push to improve corporate governance. Over the past year, Japanese stocks have returned 45%, including dividend reinvestment, exceeding the S&P 500 index (34%) and the MSCI World Index (30%).

US Stocks Will Outperform Japan’s, Respondents Say

We asked: Which of these will perform best this year?

The fact that most of the funds for famous US investor Warren Buffett’s purchases of Japanese trading company stocks were raised through low-yielding yen bonds shows how investors have benefited from the Bank of Japan’s easing policy.

Participants in our survey were relatively optimistic about Japanese stocks, with 45% saying they remain structurally undervalued.

Reiko Sera, market strategist at Sumitomo Mitsui Trust Bank, predicts that the Japanese stock market may see some upside, but that it will not enter a downtrend. If the dollar-yen exchange rate were to fall to around 120 yen to the dollar, it would have an impact on stock prices, but he said this was unlikely.

The MLIV Pulse survey was conducted by Bloomberg’s Markets Live team, which runs the MLIV blog, among Bloomberg readers on devices and online from March 11th to March 15th.

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Original title: Japan’s $4 Trillion to Stay Offshore After BOJ Hike: MLIV Pulse (excerpt)

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