Hear the Federal Reserve Bank will end its negative interest rate policy, and the Nikkei can recover 40,000 pips?
18 March$Nikkei 225(.N225.JP)$Once again forcing the close to 40,000 point barrier, market attention on March 19Bank of JapanA new interest rate policy will be announced after the meeting, including the end of the yield curve control (YCC) policy, which is expected to begin in April. Japan will move away from negative interest rate policy and maintain zero interest rates for a long time as the Japanese economy improves.
What changes will the Bank of Japan's message bring to the yen and the Japanese stock market?
Before discussing this point, we need to understand that we first understand the upswing of the Japanese stock market and the current situation facing the Japanese economy.
The Nikkei index crossed the 40,000 mark this year to reach a high of 40472 points, the highest level in the history of the Japanese stock market and a high of the index since 1989. Economically, the index crossing this mark also represents the Japanese economy's 30-year exit from a quandary, which has also attracted global investor attention. In early March 2024, the total market value of Japanese stocks listed on the Japanese stock exchange jumped to over ¥1 trillion, and rightfully ranked third in the world, following in the footsteps of the United States and China.
An analysis of the reasons behind the rise in Japanese stocks and a little about the predictions for the future
The strong performance of the Japanese stock market was supported by the strong performance of the “day appreciation concept”. Over the years, the Tokyo Stock Exchange continues to help companies whose stock prices are below book value and severely undervalued asset value develop capital improvement programs, and urge and encourage Japanese blue-chip companies to increase dividends and share buybacks, further strengthen corporate governance, and actively engage in the exploration of new technologies This is also the origin of the concept of “day-specific valuation”, such as research and globalisation competition.
SpeakingJapanese stocks, of course, “God of God” Buffet. On February 24, Burkhill Hasawi of Buffett released its latest financial statements and issued an annual letter to shareholders, which spoke extensively about the Japanese company and said that Foxx would maintain its investments in five Japanese businesses indefinitely. Buffett's preference for the five largest Japanese merchants in Ito-Tadata, Maruho, Mitsubishi, Mitsui Properties and Sumitomo dates back to 2020. Since then, his shareholding ratio in five of Japan's largest commercial enterprises has grown to more than 8.5% by the end of June 2023, rising to 9% today.
In fact, in addition to the shares invested in by Buffett, the reform measures of many Japanese companies have worked. Many Japanese companies have experienced a sharp downward trend in net debt levels over the past few years, coupled with low cost controls, and corporate profitability and cash flow have attracted investors' attention. From a macroeconomic point of view, Japan's economy is also likely to undergo significant changes, with the prospect of an end to the shrinking problem. For example, in the previous Japanese “Spring Battle”, trade unions achieved an average increase of 5.28% in total wages, for example.Bank of JapanThe end of negative interest rate policy paves the way. The market generally believesBank of JapanThe end of many years of negative interest rate policy will lead to the normalization of Japanese interest rates.
Normalization of Japanese interest rates is more favorable
Normalization of interest rates is the catalyst for further increases in the Japanese stock market. When many investors first heard about the Bank of Japan's rate hike, they began to think that local liquidity in Japan would narrow and the yen would rise, causing the Japanese stock market to fall. Short-line vibrations are possible for individuals to detect in the wake of speculative hype, but there is little chance of this logic being released in the long run. Since interest rate normalization also means that the local economy is gradually improving and will be beneficial to the profitability of local businesses under fundamental support; the optimistic assumption is that taxes are more likely to help with local government debt problems and even stimulate local population birth rate problems as a result of improved economic activity Change. In addition, changes in interest rate policy by the Bank of Japan will lead to the appreciation of the yen, but will also encourage the flow of international capital into the Japanese market, which will benefit the economic performance. The best example is the interest rate hike cycle in the United States at the end of 2015.
The Japanese stock market will also change a lot, and international investors have been investing in the past few yearsJapanese Stock MarketBoth yen and US dollar hedging needs to be hedged, but with the central bank likely ending its negative interest rate policy this yearUS Interest Rate ReductionThere is still a possibility that some interest rate activity will lead to a close or even a closing activity, thus driving the yen andJapanese Stock MarketThe surface of the elevator is found. This visit and the way in which Futu invested early in the exhibition has not changed.
Choosing a Japanese ETF
On the assumption that the yen and the stock market double, the proposed 2024 Japanese equity ETF will be “hedge-free”Japanese Stock ETF, SELECT FOR ENTRY TYPE.
Notes on Hong Kong Listing$CSOP Nikkei 225 Index ETF(03153.HK)$
Watch for US stocks$iShares MSCI Japan ETF(EWJ.US)$
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The author is a licensee of the Securities and Exchange Commission and its affiliates do not have a financial interest in the proposed issuer of shares mentioned above
Senior Strategist, Futu Securities
Tam Chi Lok
