Feb 13 (Reuters) - BlackRock Investment Institute cut
Japanese stocks to “underweight” on Monday, saying that a Bank
of Japan (BOJ) policy change away from its “ultra-loose”
monetary strategy could push global yields higher and reduce
risk appetite.
Japanese inflation has reached four-decade highs on a weaker
yen and higher energy prices, and “crucially, that’s now feeding
into higher wages,” BlackRock said. “We think that paves the way
for the BOJ to roll back policies that by its own measures may
have achieved their goal: to foster a sustained rise in
inflation toward its 2% target that is underpinned by wage
growth.”
Japan's government is likely to appoint academic Kazuo Ueda
as the next Bank of Japan governor when Haruhiko Kuroda’s second
term ends in April, a surprise choice that could finally align
the country with other major economies in raising interest
rates.
“Regardless of who takes over, we think the wage and
inflation dynamics at play mean the current policy stance has
likely run its course,” BlackRock said, noting that policy
changes could include the BOJ widening its band on the 10-year
bond yield target again, or abandoning yield curve control.
The implications are likely to be global and “we see the
jolt from a BOJ policy shift as another driver of higher term
premium, or the compensation investors demand for holding
long-term government bonds,” BlackRock said, adding that the
risk of further global yields increases could dampen global risk
sentiment.
Monetary policy and Japan’s economic sensitivity to
slowdowns in other major economies spurred the downgrade,
BlackRock said. "Declining earnings growth estimates already
reflect some risks from slowing growth –we expect Japan’s export
sector to suffer,” it added.
(Reporting By Karen Brettell; Editing by Josie Kao)
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