Interest rates in Asia and particularly the global economic powerhouses of China and Japan appear to be on the way up. In Japan, the recession that has gripped the country off and on for the past decade appears to be finally loosening it grip and seeing some optimism return to Japan.
Japan’s economic growth is encouraging and there is a sense of sustained turnaround is in the works. The Nikkei 225, a barometer of blue chip performance in Japan, traded at a 52-week and multi- year high of 17,563.40 on April 6, up over 70% from its 52-week low. Optimism towards corporate Japan is at its highest level in about two decades. But, the country’s economic turnaround is also fueling speculation that the Bank of Japan will soon begin to increase interest rates, something the country has not seen for years.
The Bank of Japan’s Governor Fukui suggested last Sunday that it is “open to the next step” as far as raising interest rates, albeit there was no timetable given. He also added “we have ended quantitative easing; now we are in the process of mopping up excessive liquidity.” According to a survey by Bloomberg of economists, speculation calls for rates to rise in July. Keep in mind that it will probably be a small rate increase and not material enough to starve the economy. What you need to look for is whether we are at the base of an upward cycle in Japanese interest rates.
The Bank of Japan must be alert not to starve off the current economic renewal and reduce investor and consumer confidence. After two decades stuck in neutral, Japan needs to show the global community that it is on a sustainable economic growth track.
For investors, the recovering economy, so long as interest rates do not accelerate, presents investing opportunities in large blue chip Japanese companies either via an American Depository Receipts, index fund, an Exchange Traded Fund, or Japanese focused mutual fund.