Top Fund Manager Betting Bank of Japan to Push Yields Lower

  • BOJ’s Kuroda says there is ‘sufficent’ chance of more stimulus
  • A deepening of negative interest rates is possible: Manulife

The Bank of Japan’s policy review will probably cause government bonds to rise again, making even notes yielding less than zero attractive, according to Manulife Financial Corp.’s Japanese money management unit.

JGB yields have jumped since July 29 when the BOJ disappointed some investors by refraining from expanding debt purchases or deepening negative-interest rates. A policy review, announced the same day, has led some people to speculate the BOJ may reduce stimulus measures. Head of fixed income at the unit, Keisuke Tsumoto, who has beaten Japan’s bond benchmark for seven straight years, says that is unlikely and the jump in yields offers investors a buying opportunity.

His prediction is in line with the views of analysts surveyed by Bloomberg News, with 22 of 33 people saying in a Aug. 1-4 poll that the review makes an expansion of stimulus by the BOJ more likely. There is “sufficient chance” the BOJ will add to its unprecedented easing at next month’s policy meeting, and “technically” there is room for deeper negative rates, central bank Governor Haruhiko Kuroda said in an interview published Saturday in the Sankei newspaper. Kuroda said the chances are high that the BOJ will reach its inflation target in fiscal 2017, but uncertainties are rising due to the global economic situation.

“I expect the BOJ to maintain its inflation target because if they changed that it would lead to an issue of the central bank’s credibility,” said Tsumoto in an interview on Aug. 18. “A further deepening in negative interest rates is possible.”

Tsumoto’s strategic active bond fund returned an average 3.2 percent since 2006, beating gains on the Nomura BPI Index by 0.57 percentage point, according to documents from Manulife. The fund has beaten the industry benchmark for seven straight years to the end of March.

Japan’s 10-year bond yield moved within a few basis points of turning positive earlier this month after falling to a record low of minus 0.3 percent in July. The yield was minus 0.07 percent on Monday.

“There has been a lot of discussion about what is going to happen after this policy review they’re conducting,” Richard Jerram, the chief economist at Bank of Singapore Ltd., said in a Bloomberg Television interview Monday. “The fear is they may cut back on some things, but realistically, I think, what they are looking for is simply ways to make the policy more effective.”

Tsumoto said he has been buying Japanese government notes but is doing so cautiously because of rather high volatility in debt markets. The BOJ’s negative-interest rate policy is unpopular with banks, and any further deepening of minus levels will probably be done in a manner that takes into account concerns about lenders’ financial stability, he said.

“JGBs from around 10-years to 20-years are relatively cheap,” said Tsumoto.

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