BlackRock sings a different tune: the Bank of Japan may stay put for a longer period of time!

As the world's largest asset management company, BlackRock believes that the Bank of Japan is likely to keep interest rates unchanged for a longer period of time, which is a positive factor for the Japanese stock market.

Although investors need to remain vigilant about any potential changes at any Bank of Japan meeting this year, according to Yuichi Chiguchi, Chief Investment Strategist at BlackRock Japan, the Bank of Japan may need to wait until the end of 2024 for price trends to become clear before taking action. This suggests that the Tokyo Stock Price Index (TOPIX) may reach new historical highs this year.

Chiguchi said, "We expect Japan to continue its accommodative environment." He added that in a situation where real interest rates are negative, this is beneficial for companies and will boost the stock market.

Ahead of the Bank of Japan's policy decision on July 31, investors in the Japanese stock market, bonds, and yen were on edge, with widespread expectations that the Bank of Japan would reduce its bond purchase program. Those familiar with the matter said that despite concerns about weak consumer spending adding complexity to the need for another rate hike next week, the focus remains on interest rates.

BlackRock Investment Institute stated in its mid-year outlook report that the Japanese economic recovery and rising inflation have made the Japanese stock market one of their most bullish markets. This optimistic view is also supported by Goldman Sachs, which recently raised its earnings forecast for the TOPIX. HSBC Holdings is increasing its holdings of Japanese stocks, indicating its optimism about the Japanese stock market.

This contrasts with the view of Schroders Investment Management, which downgraded its rating on Japanese stocks to neutral last month, citing the diminishing positive impact of a weaker yen on the stock market, as well as signs of deteriorating confidence among consumers and small businesses due to rising import costs.

Nevertheless, Chiguchi believes that there is still room for growth in the Japanese stock market. However, he also pointed out that the Bank of Japan may take some action at each meeting. This month, the Bank of Japan met with bond market participants and formulated a plan to reduce bond purchases.

The end of decades of deflation in Japan has reshaped the mindset of companies, exchanges, and aggressive investors, prompting companies to use capital more efficiently. This has led to the Nikkei 225 and TOPIX reaching historical highs this year, although the recent rapid appreciation of the yen has somewhat dimmed the shine of the Japanese stock market.

Chiguchi stated that Japanese companies are shifting from cost-cutting to raising prices, "which is completely different from the past," something that has never happened during a deflationary economy.

Chiguchi believes that in the Japanese stock market, companies in the technology sector are very attractive because they are in a favorable position to benefit from the expansion of artificial intelligence, an aging society, decarbonization efforts, and geopolitical tensions