From Morningstar:

The Bank of Japan has decided to keep its ultra-loose monetary policy unchanged in its last policy meeting for the year. Inflation will be the central factor in its decision whether to adjust rates. The market is watching the spring wage negotiations that kick off in January, and the potential pivot to rate cuts in the US.

The inflation comes after three decades of close-to-zero price changes. Japan’s consumer prices in mid-2022 were only 8% higher than three decades earlier, averaging annual CPI inflation at just 0.2%.

Aadish Kumar, an international economist at T. Rowe Price, predicts the termination of the current negative interest rate policy in April 2024 as well as the removal of the yield curve control (YCC) policy.

Experts forecast mild yen appreciation against the euro in 2024, with increasing interest rates on the yen as one potential driver. A strong yen appreciation could bring trouble for Japanese stocks while moderate appreciation should not be an issue.

There is concern that a strong yen appreciation could negatively impact Japanese stocks. The governance story behind Japanese equities is strong, but currency appreciation can pose a challenge to the equity market.

Analysts suggest being cautious with export-heavy and value-oriented companies in Japan. They expect growth companies and domestically focused businesses to improve in 2024 from their depressed valuation levels.



Read more: Will the Bank of Japan Raise Rates in 2024?