BlackRock: Bank of Japan to Proceed Cautiously on Further Rate Hikes

June 16: Ben Powell of BlackRock’s Investment Institute (the firm’s official think tank) noted that the Bank of Japan is likely to proceed cautiously with any further interest rate increases, after the central bank lifted rates to their highest level since 1995. At home, solid wage growth, persistent core inflation, and deeply negative real interest rates have all supported the case for tightening monetary policy. Overseas, hopes that tensions in the Middle East will cool have eased the threat of an ongoing energy crisis, which should help curb inflation driven by imported goods and fuels. That said, there’s still a risk Japan’s inflation rate could stay above the Bank of Japan’s 2% target. The institute maintains an underweight position in Japanese government bonds, citing upcoming rate hikes, rising global term premiums, and large-scale bond issuances as factors that will continue pushing yields higher. Over a six to 12-month horizon, the institute holds a neutral view on Japanese stocks, since imported energy costs may still weigh on returns. For the longer term, however, it keeps an overweight position relative to the benchmark, as sustained inflation and wage trends support corporate profitability.