The Bank of Japan’s yield curve control and negative interest rate policy will likely be removed by mid-2024, and Japanese stocks will continue to rally from the government’s wage hiking efforts, according to JPMorgan Securities Japan Co.’s Rie Nishihara.
(Bloomberg) — The Bank of Japan’s yield curve control and negative interest rate policy will likely be removed by mid-2024, and Japanese stocks will continue to rally from the government’s wage hiking efforts, according to JPMorgan Securities Japan Co.’s Rie Nishihara.
While steering away from commenting on the likely outcome of this week’s central bank meeting, the chief Japan equity strategist pointed to Prime Minister Fumio Kishida’s efforts to raise Japan’s minimum wage as a key reason behind her views.
The government has increased minimum pay by a record amount in October and plans to keep increasing it by another 50% by the mid-2030s.
“This government initiative is very strong,” Nishihara said at a Bloomberg New Voices event Tuesday evening, adding that the long-term commitment gives her confidence that the virtuous cycle between wages and inflation will continue. “I’m actually optimistic of this shift from deflation to inflation,” she said, also noting that around 20% of wages in Japan are impacted by minimum pay levels.
Given these government efforts, JPMorgan expects that the BOJ will move toward policy normalization, removing yield curve control in early 2024, and scrapping negative interest rates soon after in mid-2024.
The Nikkei 225, which is already seeing over 30-year highs, may reach 35,000 to 36,000 by year-end or mid-2024, according to Nishihara, as Japan shifts further away from deflation to inflation.
In the medium term, it could get to 42,000 to 48,000 if Japanese corporates start to use the excess cash they’ve stored during three decades of deflation, and invest in growth, wages and better corporate governance. A surge to 48,000 would mean around a 45% jump from current levels.
“I think we’re just at the beginning of these structural changes,” she said.
Nishihara also pointed to other factors that could contribute to Japan’s economic growth, including capital spending, productivity and labor. An important step for this will be support for working women, she said.
Mari Kogiso, co-chief executive officer of SDG Impact Japan Inc. who also spoke at the same event said that mandatory gender pay disclosures that have come into effect should help improve Japan’s wide gender pay gap, a phenomenon that’s kept wages in Japan lower overall.
“The critical part is the labor force,” said Nishihara, adding that how the government spends its budget to support working women is key. The Bloomberg New Voices event where she spoke has a mission of increasing the visibility of women in business across media.
–With assistance from Kana Nishizawa.
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