Allianz Investment: Expects the Bank of Japan to reduce bond purchases and raise interest rates, remains optimistic about Japanese stocks
Allianz Investment expects that the Bank of Japan will announce a reduction in bond purchases and an interest rate hike at the July meeting. It is anticipated that the Bank of Japan will raise the upper limit of interest rates to around 0.25%. Allianz Investment believes that stabilizing the Japanese yen and preventing further depreciation of the yen are crucial for stabilizing consumption and market sentiment. It is expected that the Bank of Japan will reduce bond purchases by a considerable amount, with a possible monthly reduction of ¥30-40 trillion over the next two years to encourage buyers to reinvest in the market. In addition, Allianz Investment maintains a cautious view on Japanese government bonds and believes that current prices largely reflect the upcoming changes, hence there may be a short-term adjustment of positions in Japanese government bonds to neutral
According to the information obtained from the Smart Finance app, Allianz Investment expects that the Bank of Japan will announce a reduction in bond purchases and an interest rate hike at the July meeting. The Bank of Japan will formulate a path to reduce bond purchases, adjust the scale of bond purchases according to market expectations to avoid chaos. Due to the driving factors of long-term structural issues in Japan, coupled with the support from global growth, Allianz Investment remains optimistic about Japanese stocks.
Allianz Investment points out that due to the limited guidance provided by the Bank of Japan, there is significant uncertainty regarding potential interest rate hikes. However, recent data has been solid enough, allowing the Bank of Japan to seize the opportunity to exit zero interest rates before changes in the external environment. It is expected that the Bank of Japan will raise the upper limit of interest rates to around 0.25%. Considering the current level of inflation, that is, real interest rates are severely negative, the market should be able to fully digest this interest rate hike.
Although the market is concerned that rising interest rates may have a negative impact on consumption, stabilizing the yen and preventing further depreciation of the yen are crucial for stabilizing consumption and market sentiment. However, whether the yen can appreciate significantly still faces challenges until there is more evidence of a slowdown in the U.S. economy. Allianz Investment expects the Bank of Japan to reduce bond purchases by a considerable amount, with a possible reduction of 3 to 4 trillion yen per month over the next two years to encourage buyers to reinvest in the market.
Furthermore, Allianz Investment maintains a cautious view on Japanese government bonds and believes that current prices largely reflect the upcoming changes, therefore, there may be a short-term adjustment of positions in Japanese government bonds to neutral