Wealth Outlook 2024 - Slow then grow

67 Wealth Outlook 2024 | Opportunistic Our top 10 high conviction potential opportunities FIGURE 13 What goes up … US/Japanese policy rate differential and USD/ JPY exchange rate headed for an inflection point? USD-JPY policy rate differential (%) USDJPY Market pricing of future rate differential 150 6 50 100 - 2 2 4 0 2010 2012 2014 2016 2018 2020 2022 2024 Source: Bloomberg as of November 15, 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. For illustrative purposes only. Past performance is no guarantee of future results. Real results may vary. Japanese economy (and the data suggests they’re probably right). That sets up the likelihood of a reversal in 2024. Japan could hardly have taken a more different approach than the world’s other major central banks to the inflation spike of 2021-2022. After having kept its short-term policy rates near zero or below for more than a dozen years, the Bank of Japan determined to keep going even as inflation in Japan rose. In contrast, the Fed raised its policy rates by 525 basis points. Over that time, Japan has merely allowed its longer- term yield targets to drift higher while keeping short rates negative. Ironically, it’s the Fed that may now soon need to swerve from a monetary policy path that could ultimately prove deflationary, while we see Japan swerving from its inflationary one. Japan’s headline consumer price index inflation has averaged 3.6% for the past two years – a major victory. We can’t imagine policymakers will press their luck much longer, and based on FIGURE 13 above, the market seems to agree with us. Aside from investing directly in the currency, investors can gain exposure through investing in the Japanese banks that may benefit from the monetary policy tightening we expect to help drive the strengthening. To the extent a stronger yen is a sign of continuing economic strength, another play are strong Japanese assets that might generate positive returns even if the currency does not boost returns further. Japanese tech firms providing semiconductor equipment, battery technology, robotics and automation are globally competitive in growing industries.