As the Bank of Japan considers raising interest rates, the yen exchange rate is on an upward trend

Shigeoki Muramatsu, Chief Investment Officer of Mizuho Financial Group, recently pointed out that the Japanese yen is showing an upward trend, and the market is paying attention to the possibility of breaking through the 150 yen mark. This is because the Bank of Japan is accelerating its consideration of interest rate hikes. As of the end of September last year, Mizuho was managing approximately $512 billion in assets, according to financial data provider Jin10.

Market Environment Changes Driven by Central Bank Policy Shift

According to Muramatsu, there was previously concern that the government’s policy pushability was limited in response to the Bank of Japan’s interest rate hikes, which was seen as exerting downward pressure on the yen. However, that situation is now changing significantly. He believes that, although the Bank of Japan’s policy tightening was previously viewed as gradual, in the context of coordinated actions with the United States, the likelihood of interest rate increases is rising. The synergistic effect of policy coordination between the US and Japan is also shifting market sentiment.

Shift in Investment Strategy Toward Long-Term Government Bonds

Mizuho is currently prioritizing the purchase of ultra-long Japanese government bonds. Muramatsu emphasized that the current yield levels are attractive relative to Japan’s economic growth outlook. Notably, after last month’s bond market turmoil, the yield on 30-year government bonds stabilized at around 3.64%. This offers a reasonable value for investors.

Bond Market Stability and Future Outlook

Muramatsu believes that the bond market will remain stable as long as government tax reduction policies do not exceed the framework of the current two-year food tax exemption. Interestingly, the yield on 30-year Japanese government bonds is higher than that of comparable German bonds. This suggests that, despite Japan’s lower potential growth rate compared to Germany, Japanese government bonds are relatively more attractive. These environmental changes are aligned with the Bank of Japan’s considerations of interest rate hikes, and the entire market is in the process of seeking a new equilibrium point.