Japanese investors likely to remain offshore – survey

Japanese investors are likely to keep their money offshore as the Bank of Japan (BOJ) moves towards tighter policy, a recent Bloomberg Markets Live Pulse survey said on Sunday.

Only 40 per cent of respondents believe that the first interest rate hike by the Bank of Japan since 2007 will lead to repatriation of funds back to Japan. This trend is positive for US stocks and bonds.

The potential limited increase in the BOJ’s policy rate may keep yield differentials between Japan and other major economies too wide for Japanese investors to switch.

This is expected to ease concerns about the impact of a policy shift on global markets due to Japan’s significant holdings of foreign securities.

Despite speculation about a BOJ policy change, Japanese investors have been buying foreign bonds, with ¥3.5 trillion purchased in the first two months of this year.

The BOJ board will discuss the possibility of ending negative interest rates at a meeting ending on March 19, with a 67 per cent chance of such a move indicated by overnight-indexed swaps.

By the end of the year, 73 per cent of survey participants expect the BOJ to raise the short-term interest rate to between 0.01 and 0.5 per cent.

Even if the policy rate reaches 0.5 per cent by the end of 2024, it would still be significantly lower than the US rate, potentially weakening the Japanese yen.

The yen has depreciated about 10 per cent against the dollar in the past year, with expectations that it may end the year between 120 and 140 per dollar. Currency strategists anticipate a limited rally in the yen.