To The Moon

1. The Formal End of the Era of Global Negative Interest Rates

The Bank of Japan concluded its two-day monetary policy meeting on the March.19th and decided to set its policy interest rate in the range of 0% to 0.1%, marking the first rate hike by the Bank of Japan in 17 years since February 2007.

Hideo Kumano, Chief Economist at Japan's First Life Research Institute, said, "This is a significant policy shift, much more comprehensive than I expected."

With this, the formal end of the era of global negative interest rates (in recent years, the BOJ has been the only central bank in the world to maintain negative interest rates) has arrived.

This historic shift aims to free the Japanese economy from the deflationary spiral. The effectiveness of Japan's negative interest rate policy, a non-traditional monetary policy tool, in stimulating economic growth and increasing inflation has been controversial since 2013.

2.What impact will Japan's rate hike have on Japanese stocks, the yen, and other assets?

Analysts at CITIC Securities believe that the rate hike by the Bank of Japan may not affect Japanese stocks, as historical data shows that the impact of the only two rate hike cycles by the Bank of Japan in this century has been limited on Japanese stocks.

• During the rate hike cycle in 2000, the Nikkei Index experienced a downturn, mainly due to the drag from the US stocks. At that time, the bursting of the internet bubble in US stocks gradually began, leading to a downturn in Japanese stocks amid the decline in US stocks.

• During the rate hike cycle from 2006 to 2007, the Nikkei Index experienced an uptrend, mainly driven by the rise in US stocks, as the overall US stock market was in an uptrend.

Fitch Ratings expects the normalization process of the Bank of Japan's monetary policy to be gradual. "The Bank of Japan will not initiate a radical tightening cycle, as this could potentially push Japan back into deflation. Instead, we expect rates to gradually rise, reaching only 0.25% by the end of 2025."

David Scutt, a senior analyst at CMC Markets, also noted his positive outlook on the overall Japanese stock market. The funds flowing into the Japanese stock market last year were mainly from international investors, and this trend is expected to continue this year. Additionally, more domestic Japanese investors are expected to consider entering the stock market.

In summary, analysts emphasize that the Bank of Japan's rate hike policy will be gradual, and given that Japanese rates are still in a low range, this lays the foundation for a upward trend in the Japanese stock market in the medium term. The current consensus among analysts is that the Bank of Japan's decision to end its negative interest rate policy is unlikely to disrupt the market, and the Japanese stock market will continue to rise.

As for the yen, after the policy change, the yen against the US dollar fell below 150 from around 149.30.

Analysts expect that with the Bank of Japan's rate hike, the US dollar against the yen will decline significantly, as the interest rate differential between the US and Japan over the past two years has been a key factor suppressing the yen.

Macro strategist Alex Loo from TD Securities and senior macro strategist Homin Lee from LG Economic Research pointed out that if Bank of Japan Governor Haruhiko Kuroda shows a hawkish stance in the future, such as indicating the possibility of a rate hike in the second half of the year, the yen will undergo a significant adjustment.

Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo, said, "If the dollar-yen exchange rate falls sharply to around 120, stock prices will indeed be affected, but the likelihood of this happening is not high."

If the upside potential of the yen is limited, it is also expected to have a positive impact on the Japanese stock market.

3.Continuing to follow the "Big Winner Buffett" to invest in Japanese assets?

In the past two years, Japan seems to have finally returned to a path of sustainable growth, with both wages and exports increasing. This has attracted a large number of foreign investors to inject funds into Japan and pushed the Nikkei 225 index beyond the record set thirty years ago.

And the big winner investing in Japanese assets is none other than Buffett. Buffett has been continuously increasing his holdings in Japan's five major trading companies over the past two years. These five major trading companies control nearly 99% of Japan's large-scale production enterprises and trading companies, holding the lifeline of various industries in Japan.

In his latest shareholder letter in February, Buffett revealed that Berkshire Hathaway's total investment cost in these five companies amounted to 16 trillion yen, and the holding value of these companies by the end of 2023 was 29 trillion yen. Berkshire Hathaway's unrealized dollar return at the end of the year was 61%, reaching $8 billion.

In the open market, investing in the five major trading companies is considered one of Buffett's most successful investments in recent years.

Apart from Buffett, perhaps many investors have also benefited from investing in Japanese assets in recent years. A good friend of the author invested in Japanese properties many years ago, and the prices have also risen significantly.

Considering the positive views of a series of experts, amid the continuing bull market in US stocks and the unchanged upward trend in the medium term in the Japanese stock market, investing in Japanese assets may still be worthwhile.

As a US stock investor, you can still focus on related ETFs in the US market.

According to the latest ranking of Total Assets ($MM), the top 10 Japanese ETFs have been positive since the beginning of this year, and most of them had double-digit returns in 2023.

Are Japanese stocks overvalued?

If there are other better investment targets, tiger friends are welcome to communicate in the comment area.