The Bank of Japan decided at last week's monetary policy meeting to raise the policy interest rate by 0.25 percentage points to 0.75%. This policy shift comes in response to the Japanese economy's complete exit from deflation and the confirmation of sustained price increases and wage growth.

According to the analysis of our research team, this policy shift is expected to have a significant impact not only on the domestic market in Japan but also on the investment environment across Asia. The particularly notable points are as follows:

1. Increased pressure for a stronger yen: The narrowing of the interest rate differential between Japan and other major countries may accelerate the upward trend of the yen. This could affect the export competitiveness within Asia, and particularly put pressure on the corporate earnings of exporting countries that compete with Japan, such as South Korea, Taiwan, and China.
2. Changes in capital inflows to the Asian bond market: Japanese institutional investors may review their allocation of funds to high-yield Asian bonds as the yields on domestic bonds rise. In particular, the bond markets of Indonesia, India, and the Philippines require close attention.
3. Structural changes in the Japanese stock market: Sectors such as real estate and public works that have benefited from the low-interest-rate environment will face pressure, while financial sectors such as banks and insurance are expected to see improved profitability.
4. Investment opportunities in Asian consumer-related companies: The decrease in import costs due to a stronger yen may lead to the activation of domestic consumption in Japan. At the same time, attention should also be paid to tourism-related companies in countries such as Thailand, Vietnam, and the Philippines, where an increase in tourists from Japan is expected.

In response to this policy shift, our company recommends reviewing the allocation of Asian equity portfolios. Specifically, we propose strategies such as overweighting the Asian financial sector, underweighting high-yield bonds, and making selective investments in domestic consumer-related and high-dividend companies in Japan.

For detailed investment strategies, please refer to the detailed reports for institutional investors. For individual investment decisions, we recommend consulting with our advisors.