Speculation over the smoldering BOJ’s hawkish stance may support buying of bank and value stocks – Bloomberg

With the end of the negative interest rate policy, value stocks, including bank stocks, appeared to be losing momentum.However, the yen continues to depreciate in the foreign exchange market, and the market There is a smoldering view that the Bank of Japan will take a more hawkish stance toward another round of monetary tightening, and there is a possibility that value stocks will once again receive a tailwind.

The yen has hit a 34-year low against the dollar, and concerns about the negative impact of the weak yen on the domestic economy are growing day by day in the business world, with Governor Kazuo Ueda threatening to raise interest rates again at this meeting as soon as possible. There are speculations that the government may be making preparations for the future. The Overnight Index Swap (OIS), which reflects market participants’ monetary policy outlook, has factored in a rate hike to 0.25% by October, and has also factored in the possibility of a rate hike by July by around 50%.

Masayuki Murata, general manager of the Sumitomo Life Balance Fund Management Department, predicted that “Governor Ueda will take into account the impact of a weaker yen on prices.” Although it is unlikely that interest rates will be raised at this meeting, “there is a possibility that the Bank will take a stance that hints at a rate hike,” he said, noting that such speculation has led to the recent steady performance of bank stocks.

80% expect the Bank of Japan to raise interest rates this year, with 40% expecting the highest rate in October – Survey

When it lifted negative interest rates in March, the Bank of Japan emphasized that the accommodative financial environment would continue for the time being. The market also assumed that there would be no further interest rate hikes for some time, and some believed that the market for value stocks, including bank stocks, might end.

Chisa Kobayashi, Japanese equity strategist at UBS SuMi TRUST Wealth Management, said that while many investors had thought that the Bank of Japan’s policy changes would be over for the time being with the end of negative interest rates, the general direction that the Bank of Japan will eventually raise interest rates remains unchanged. pointing out. These points have been overlooked by the market, and she says, “Banks are a sector that has been neglected over the past few decades, so if Japan really does experience inflation, it will be a new phase.”

The yen exchange rate has surpassed the milestone of 155 yen to the dollar, and in the short term, attention will be focused on when the government and the Bank of Japan will intervene to buy the yen, but in the medium to long term, the effect of such intervention to push up the yen will be limited. There are many people who look at it as such. Since the biggest factor behind the depreciation of the yen is the absolute difference in interest rates between Japan and other countries, the pressure to prevent the depreciation of the yen is mounting on the Bank of Japan.

The current outlook for higher interest rates is not only favorable to bank stocks, where high interest rates are directly linked to profits, but also to value stocks as a whole, which tend to outperform growth stocks when interest rates rise.

When investors evaluate corporate value based on profitability, higher discount rates are applied when interest rates rise, so rising interest rates are negative for growth stocks, where high future profitability is the basis for buying. . On the other hand, although value stocks have lower earnings growth potential than growth stocks, they derive much of their corporate value from current cash flows such as dividends, making them less susceptible to rising interest rates.

The company came into the limelight after being invested by famous American investor Warren Buffett. ITOCHU Corporation and Value stocks, including stocks of the five major trading companies such as Mitsubishi Corporation, as well as steel and real estate stocks, have recently been outperforming growth stocks. Since last spring, in addition to the movement to improve capital efficiency among listed companies led by the Tokyo Stock Exchange, the market’s smoldering outlook on interest rates is likely to support the reappraisal of value stocks.

Yen further depreciates to the upper 155 yen level, hitting a new 34-year low – speculation on intervention after Bank of Japan meeting

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