BCA Research: Strong Japanese Yen Gains Momentum with Interest Rate Hikes and Economic Growth
In a recent report, BCA Research highlighted the growing strength of the Japanese yen, driven by attractive valuations in local assets, potential interest rate hikes, and a robust Japanese economy. The yen has made a remarkable recovery in the past two months, reaching 2024 peaks amidst a hawkish Bank of Japan and a weakening dollar.
According to BCA Research, the yen is a "high-conviction" buy, with interest rates and global economic conditions expected to support the currency in the coming months. The firm anticipates the Bank of Japan to hold rates steady this week, providing an opportunity to accumulate more yen. However, an unexpected rate hike could further bolster the currency.
BCA Research also noted the resilience of the Japanese economy, with rising local wages driving private consumption. As the Federal Reserve embarks on an easing cycle and the Bank of Japan considers additional rate hikes, interest rate differentials are likely to favor the yen in the long term, especially in the event of a global recession.
Looking ahead, BCA expects Japanese inflation to rise, aligning with the BOJ's forecasts and paving the way for further rate hikes. While the BOJ is expected to maintain rates in the near term, future increases are anticipated through 2024 and into 2025. BCA believes that these rate hikes will not negatively impact Japan's economy.
However, BCA Research was less optimistic about Japanese equities, rating them as "structurally neutral." The firm cited yen strength as a potential headwind and highlighted the lack of immediate positive developments in corporate governance and structural reforms.
In conclusion, investors may consider taking advantage of the strengthening Japanese yen, as supported by interest rate hikes and a resilient economy. While Japanese equities may face challenges, the currency's upward momentum could present attractive opportunities for investors seeking to diversify their portfolios.