BlackRock Says BOJ to Be Cautious on Further Rate Hikes

BlackRock said the Bank of Japan is likely to take a measured approach to any additional interest-rate increases. While the BOJ has raised its policy rate to the highest level since 1995, external uncertainty and the inflation outlook could keep it cautious on further tightening.

Odaily, a cryptocurrency-focused media outlet, reported on June 16, citing Jinse, that Ben Powell of the BlackRock Investment Institute said the BOJ may move carefully on further rate hikes.

Powell said rising wages in Japan, resilient underlying inflation and deeply negative real interest rates support tighter monetary policy. Easing tensions in the Middle East, however, may reduce fears of an energy-price shock and help contain pressure from import prices.

He also said Japan still faces a risk that inflation stays above the BOJ's 2% target. That leaves room for additional tightening, though the pace may need to be calibrated carefully.

BlackRock maintained its underweight view on Japanese government bonds. Rate hikes, a high global term premium and heavy government bond issuance could put upward pressure on Japanese yields, it said.

On Japanese equities, BlackRock kept a neutral view over a six- to 12-month horizon because imported energy costs could still weigh on corporate profitability. Over the longer term, however, it said rising prices and wages could support earnings, and it maintained an overweight position relative to its benchmark.

Markets are watching the BOJ's path for further tightening as a factor that could influence the yen and flows into global risk assets. In particular, renewed concern over an unwinding of the yen carry trade could add to volatility in stocks and cryptocurrency markets.