Keep on the bullish trend! BlackRock: Japanese stocks will be the big winners of the Bank of Japan's interest rate hike.

At a time when the Japanese stock market continues to hit a 34-year high, BlackRock remains bullish.

According to media reports, Yue Bamba, head of BlackRock's active equity investment department in Japan, predicts that Japan's exit from ultra-loose monetary policy may have an unusual impact on the market, making Japanese stocks the biggest beneficiaries of central bank rate hikes.

Currently, bets on the Bank of Japan's shift are reshaping Japan's investment landscape. Bamba pointed out that there are still many underweight positions in the market, indicating that the Japanese stock market is still in the early stages, with more funds expected to flow into Japan, potentially supporting further gains in Japanese stocks after achieving the largest increase since 2013 last year.

Bamba told the media:

"Abe's focus is to help Japan escape deflation, which is enough to attract global investors' attention."

"From strong earnings to increased capital expenditure, all these factors will provide momentum for stock market gains - there is more support behind stocks compared to other asset classes."

"Japan's previous weight in global investment portfolios was low, but that may not be the case anymore."

Under the late Prime Minister Shinzo Abe's leadership, the Bank of Japan has been implementing ultra-loose monetary policy since 2013. Since April 2022, the inflation level has been maintained above the 2% target, paving the way for a possible rate hike at the Bank of Japan's second annual rate meeting on March 19.

Bamba expects the Bank of Japan to start exiting the Yield Curve Control (YCC) policy as early as March, while stating that any changes could be "mildly accommodative," which he believes will sharply contrast Japan with the restrictive monetary policy environments in Europe and the United States, making Japan a more attractive destination for global investors.

In addition to BlackRock, JPMorgan, BNP Paribas Asset Management, and BNP Paribas Asset Management are also bullish on Japanese stocks.

Rie Nishihara, Chief Japan Equity Strategist at JPMorgan, stated that Japanese stock buybacks are expected to exceed the previous fiscal year, which already reached a new high since 2005.

Arnout Van Rijn, Portfolio Manager of Multi-Asset Quantitative Solutions at BNP Paribas Asset Management, mentioned in a report that they are already long on Japanese stocks and predict that Japanese stocks will continue to hit new highs:

"Japanese companies are facing pressure from domestic and foreign investors, governments, and financial market regulators to return more capital to shareholders."

Wei Li, Portfolio Manager of Multi-Asset Quantitative Solutions at BNP Paribas Asset Management, expressed a preference for Japanese stocks over the yen and Japanese government bonds, as the Bank of Japan's rate hikes will be "gradual," therefore not rapidly boosting the yen or increasing the attractiveness of government bonds.