Bank of Japan Considers Exiting Negative-Rates Regime

By Patricia Miller


Prepare for a potential BOJ rate hike and strengthen yen. Understand the impact on investments and economic growth for retail investors.

Japan flag with stock market finance, economy trend graph digital technology.
Bank of Japan Considers Exiting Negative-Rates Regime

What You Need To Know

Investors are preparing for a pivotal moment as the Bank of Japan (BOJ) considers exiting its negative-rates regime and potentially increasing borrowing costs. The anticipation of economic growth and rising prices has led to a surge in the yen and an increase in bond yields and shares of financial institutions. Experts believe that shifting consumer and domestic investor sentiment towards a more positive outlook for domestic assets could have profound implications on Japanese assets and potentially lift the economy.

Currency traders are adjusting their positions as speculative bets against the yen reach their highest level in over six years. While a BOJ policy shift may dent the yen's appeal as a funding currency for carry trades, the interest rate differential between Japan and other central banks may still remain wide. Overall, the market expects the yen to strengthen, albeit with uneven moves, over the year.

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Why This Is Important for Retail Investors

  1. Impact on investments: The potential policy shift by the Bank of Japan and the resulting increase in borrowing costs can directly impact retail investors' portfolios, especially if they have exposure to Japanese assets.

  2. Currency implications: The surge in the yen and potential repatriation flows can have implications for retail investors who hold assets denominated in foreign currencies. This can impact the value of their investments and overall portfolio performance.

  3. Economic growth prospects: The discussions around a sustainable cycle of rising prices and wages in Japan signal a potential economic renaissance. Retail investors need to stay informed about these developments to assess opportunities for growth, such as investing in sectors or companies that could benefit from Japan's improving economy.

  4. Reassessment of risk: As market dynamics shift and interest rates potentially rise, investors should reassess the risk associated with their investments. Higher borrowing costs can affect companies' debt levels, valuations, and profitability, and investors must evaluate the impact on their investment strategies accordingly.

  5. Global market implications: The BOJ's policy shift and potential rate hike can have broader implications for global markets. Changes in the Japanese economy can influence investor sentiment, market volatility, and international trade dynamics. Retail investors should be aware of these broader trends to make informed decisions and manage their portfolios effectively.

How Can You Use This Information?

Here are some of the investing ideas that can be explored using this information:

Value Investing

With potential changes in the Japanese market, retail investors can explore undervalued Japanese stocks that may benefit from the improving economic conditions.

Value investing searches for undervalued companies that trade for less than their intrinsic values, with the expectation that they will eventually be recognized by the market.

Growth Investing

As Japan experiences a potential economic renaissance, retail investors can consider investing in sectors or companies expected to exhibit strong growth in this new economic environment.

Growth investing focuses on stocks of companies expected to grow at an above-average rate compared to other stocks in the market; learn more in our article titled 'What is Growth Investing?'.

Dividend Investing

With the potential for rising prices and wages, retail investors can look for Japanese companies that have a history of paying dividends and are likely to increase their dividend payouts.

Dividend investing targets companies that regularly distribute a portion of their earnings to shareholders as dividends.

Defensive investing

Retail investors may consider defensive investment strategies to mitigate potential risk associated with market volatility during this period of policy uncertainty.

Defensive Investing focuses on securing a portfolio by choosing companies that are less sensitive to economic downturns.

Sector Rotation

As the Japanese market undergoes significant changes, retail investors can consider rotating their investments across different sectors to capitalize on emerging opportunities and adapt to shifting market dynamics.

Sector Rotation is the practice of shifting investment capital from one industry sector to another to take advantage of the economic cycle.

Read What Others Are Saying

Bloomberg: Big Japan Trade Springs Back to Life as BOJ Rate-Hike Bets Grow

FT: Corporate Japan must quit the side hustle

Reuters: Japan household spending logs biggest drop in 35 months in January

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What you should read next:

Popular ETFs

Some investors prefer to invest in stocks via an exchange-traded fund for ease and reduced risk. Some popular ETFs include the following:

  • iShares MSCI Japan ETF (EWJ) - This ETF aims to track the investment results of an index composed of Japanese equities. It provides broad exposure to Japanese stocks and can benefit from the anticipated economic growth and positive sentiment towards domestic assets.

  • WisdomTree Japan Hedged Equity Fund (DXJ) - Specifically designed for investors looking for exposure to Japanese equities while hedging against currency risk, DXJ might be particularly relevant if the yen strengthens, as it invests in Japanese stocks but hedges against fluctuations in the yen/USD exchange rate.

  • SPDR Solactive Japan ETF (ZJPN) - This ETF seeks to provide investment results that correspond to the total return performance of the Solactive GBS Japan Large & Mid Cap Index. It offers exposure to Japanese equities and could benefit from the economic uplift and improved investor sentiment towards Japanese assets.

  • CurrencyShares Japanese Yen Trust (FXY) - For those focusing on currency movements, FXY provides exposure to the Japanese yen versus the U.S. dollar. If the yen strengthens as anticipated, this ETF could see gains, reflecting the changing dynamics in currency markets.

  • JP Morgan BetaBuilders Japan ETF (BBJP) - BBJP offers exposure to Japanese equities and tracks the Morningstar Japan Target Market Exposure Index. It covers various sectors, including financials, and could gain from the positive shifts in Japan's economy and financial markets.

  • Franklin FTSE Japan ETF (FLJP) - This ETF tracks the performance of the FTSE Japan RIC Capped Index, providing investors with exposure to Japanese equities. It includes companies from the financial sector, which might benefit from rising bond yields and a potential increase in borrowing costs.


This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Patricia Miller does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Patricia Miller has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of, has not been paid for the production of this piece by the company or companies mentioned above.

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