Wealth Outlook 2024 - Slow then grow

112 Wealth Outlook 2024 | Regional outlook Asia: faster growth for 2024 as headwinds recede Japan: potential opportunities for both equities and currency Japan should be a continued bright spot for investors, in both the equity and currency markets. As other major central banks hiked, Japan kept its own rates extremely low, punishing the yen but allowing inflation to continue drifting up to 3.5% (a welcome development in long-deflationary Japan). Japan’s economy benefited as it expanded at an above-trend pace in both nominal and real terms in 2023. Even though consumption growth was lackluster after adjusting for inflation, real investment was strong, particularly in real estate and transportation. We look for that trend to spread into areas like defense and technology in 2024, and for real consumption to regain some momentum as inflation moderates and employers allowwages to rise with higher profitability. Against this backdrop, the Bank of Japan (BoJ) has begun to gradually normalize monetary policy. This should allow both Japanese short- and long-term interest rates to rise. The previous two BoJ moves to reduce monetary stimulus (in December 2022 and July 2023) caused US Treasury yields to rise, too. But with a more stable-to-dovish Fed, any future BoJ tightening is likely to have less impact on US yields and therefore could strengthen the yen to be among the best- performing currencies in 2024 ( FIGURE 4 and see No. 8 in Our top 10 high conviction potential opportunities on page 54 ) . FIGURE 4 With gradual BoJ tightening and a less hawkish Fed, the gap betweenUS and Japanese yields is likely to narrowand potentially bring USD/JPY to around 130-135 by mid-2024 USDJPY 10Yr Gov’t yield gap US-Japan (Basis points) JAN 21 JAN 22 JAN 23 JUL 23 JAN 24 JUL 24 JUL 21 JUL 22 100 460 370 280 190 100 115 130 145 160 1.25% JGB & 4.00% UST Source: Bloomberg, as of November 14, 2023. All forecasts are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events.