New BoJ Governor to trigger Yen’s strength

Market Development: In early December the Japanese market swayed, following the US market – rising when expectations of a slowdown in the US rate hikes arose; and declining when concerns of an economic slowdown in the US grew.

Fund Commentary
17 Jan 2023

Market Development: In early December the Japanese market swayed, following the US market – rising when expectations of a slowdown in the US rate hikes arose; and declining when concerns of an economic slowdown in the US grew.

In mid-December, the market dropped as concerns of a global recession strengthened. On the 20th, the BoJ revised its Yield Curve Control (YCC) policy by increasing the range of the 10 Yr Japanese government bond yield fluctuations from ±0.25% to ±0.5%. This was regarded as an effective rate hike and the Japanese market declined significantly.

In late December, the US and European interest rates were increased further, away from the revision of the BoJ’s YCC policy and the market inched down further. However, the expectation of recovery surfaced when China relaxed its COVID restrictions.

In December, the TOPIX closed the month at 1,891.7 (down 4.7% MoM), and the Nikkei 225 at 26,094.5 (down 6.7% MoM). 26 out of 33 sectors declined.

The top five performers were Banking, Insurance, Marine Transportation, Utilities and Steel. The bottom five performers were Real Estate, Transportation Equipment, Precision Instruments, Electrical Equipment and Mining.

The 10 Yr JGB yield started at 0.253 and jumped up close to 0.5 at one point when the BoJ revised its YCC policy, before ending the month at 0.422. The JPY against the US Dollar opened at 138.07 and appreciated significantly as the interest rate in Japan gained and the rate gap between the US and Japan narrowed following the BoJ’s revision of the YCC policy. The JPY against the US Dollar closed at 131.12.


The Japanese economy is rather soft currently, but there are some signs of a brighter future. Industrial production in November declined 0.1% MoM, marking three consecutive months of decline, impacted by lower external demand from China, Europe and elsewhere.

The government forecast that industrial production would rise by 2.8% MoM in December and decline by 0.6% MoM in January 2023. The nationwide core CPI (excluding fresh food) in November rose 3.7% YoY, the highest level since December 1981, but the pace of increase has slowed considerably compared to October.

According to the December Economy Watchers Survey announced on 12th January, the overall current conditions DI for December 2022 worsened marginally for the second consecutive month, but the outlook for the DI in December improved to 47.0 from 45.1 in November. The government passed the supplementary budget for FY2022 with JPY 29 Tr (5% of GDP) on 2nd December in the Diet.

China changed its zero-COVID policy in December and relaxed border controls further on 8th January 2023. The above-mentioned factors may have had a positive impact on sentiment.

We believe that the change in the BoJ’s YCC policy is the first step in shifting its monetary policy going forward, although Mr Kuroda, the governor of the BoJ, said that this is not a change of policy, just a minor adjustment. It is almost certain that Mr Kuroda will retire in April 2023 and a senior executive from the BoJ will become governor.

This change of the YCC might have been necessary to ensure a smooth succession for the next governor. The second step could be anticipated for Q2 2023, following Mr Kuroda’s retirement, with a further shift in the BoJ’s policy rate, lifting from the current level of -0.1% to 0%.

We believe it is most likely that the policy rate will increase further to between 0.5% and 1.0% by the end of 2023.

It is expected that the currency market will change dramatically. In Q1 2023, the USD / JPY may rise temporarily and technically to the 140 level with the US FF rate continuing to rise and the BoJ doing almost nothing.

However, from Q2, we expect the USD / JPY to begin a continuous depreciation, heading to the 120 level towards the end of 2023, as the FF rate is expected to peak out and the BoJ’s policy rate would be lifted continuously.

The Japanese economy is expected to grow the most among G7 countries in 2023. Mild inflation and normalisation of the monetary policy should be positive factors for the Japanese economy and the stock

Portfolio Development

The net asset value per unit for the Nippon Growth (UCITS) Fund on a Japanese Yen basis as of 30th December 2022 outperformed the TOPIX TR Index by 2.5%, returning -2.1% over the month. The Fund did not add any new names to the portfolio and no stocks were sold out.

The Fund continues to be overweight towards economically sensitive sectors with cheap valuations such as Trading Companies, Banking and Steel; while defensive sectors such as Foods, Pharmaceuticals, Utilities and IT-related sectors, such as Electricals and Communications continue to be underweighted.

As always, we invite investors and prospective investors, to contact us should they wish to understand our views on the current situation and the positions held in the portfolio. Please do not hesitate to contact us for further information.

Adam TurbervilleAdam Turberville
+44 1481 742380


The views and statements contained herein are those of Evarich Asset Management in their capacity as Investment Advisers to the Funds as of 13/01/2023 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.