Yen target 150! Mizuho asset management giant: Japan's rate hike in April is inevitable, bullish on Japanese government bonds

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Asset management giant Asset Management One under Mizuho Financial Group said the market is underestimating the Bank of Japan's determination to tighten policy, and the yen will break through the 150 level after the BOJ raises rates in April.

The company’s Chief Investment Officer Shigeki Muramatsu said in an interview that speculation about the BOJ's difficulty in raising rates under the current government has contributed to yen weakness, but the reality may be different. U.S. Treasury Secretary Bessent recently urged Japan to allow the BOJ to further raise rates to combat inflation, a statement that surprised the market.

Muramatsu believes that clear pressure from the U.S. increases the likelihood of the BOJ raising rates sooner. He said: "When Bessent goes to such lengths, it’s hard to imagine Japan won’t give him a ‘gift.’"

Market pricing shows that the probability of the BOJ raising rates before April is now about 69%, much higher than about 40% at the end of last year. Last week the yen briefly rose to a three-month high of 152.10, and the market speculated Japan might intervene to support the exchange rate.

Unexpected US Pressure Changes Market Expectations

News that the New York Fed conducted a foreign exchange check last month caught many investors off guard. The New York Fed, acting as an agent for the U.S. Treasury, showed that Washington seems to be aligned with Japan’s efforts to curb the yen’s weakness, despite the U.S. having long been reluctant to intervene in currencies.

"I was quite surprised by this move. I didn’t expect the Fed to join in," Muramatsu said. This apparent coordination increases the possibility of the BOJ raising rates sooner.

Market concerns about the BOJ's policy stance stem from its slow pace of monetary tightening. Earlier this year, these worries drove the yen to multi-decade lows touched in 2024. But last month the currency suddenly reversed, showing sentiment is changing.

Currency market pricing reflects a significant shift in expectations. The probability of a rate hike before April jumped from about 40% at the end of last year to about 69% now, coinciding with the timing of the U.S. Treasury Secretary’s public statement.

U.S. Treasury Secretary Bessent explicitly urged Japan to allow the BOJ to further raise rates to fight inflation, providing external support for BOJ’s policy room. Muramatsu believes such pressure from the U.S. actually creates more favorable conditions for the BOJ to hike.

Ultra-Long Government Bonds Remain Attractive

Asset Management One is also optimistic about ultra-long Japanese government bonds, even though this market was the epicenter of last month’s bond market turmoil. Muramatsu said yields are high relative to Japan’s growth prospects.

30-year Japanese government bond yields have stabilized around 3.64% after surging last month. He pointed out that although Japan’s trend growth rate is low, these bond yields are higher than those of German bonds over the same period.

Muramatsu said foreign investors seemed to have sold 30-year bonds during the spike in calls for tax cuts before the election. "But since then, there has been a lot of communication, and Takashi seems to have softened her stance," he said. Japanese Prime Minister Sanae Takashi has announced a snap election for February 8 after she previously called for tax cuts. He said, Unless the scale of the tax cuts exceeds the government’s current promise of a two-year food tax exemption, these bonds should remain stable.

Muramatsu warned that if the yen strengthens above 150 against the dollar, it may put pressure on Japanese stocks. However, he added that Asset Management One remains optimistic about the long-term prospects for Japanese equities, as households may increase their investment in risk assets.

This cautious view reflects the potential impact of yen appreciation on export-oriented companies’ profits. A stronger yen typically reduces Japanese exporters' overseas earnings, thus affecting corporate profitability and stock performance.

Risk Warning and DisclaimerThe market has risks, and investment should be cautious. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views or conclusions in this article are suitable for their particular situation. Any investment based on this is at your own risk.

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