Top fund managers pile into Japan banks on BOJ tightening bets

Banks have surged more than 50 percent over the past year on speculation gains in prices and wages will become sustainable enough for the BOJ to end years of rock bottom rates that have crushed their income.

Lenders jumped Monday after a report that BOJ Governor Kazuo Ueda said it’s possible there will be enough information by year-end to judge if wages will continue to rise, a condition for adjusting stimulus. The BOJ would need to judge that its two percent inflation target could still be achieved after lifting rates, he said.

Ueda’s comments suggest an adjustment could come earlier than expected, said Atsuko Tsuchiya, the chief executive officer of Atom Capital Management Co. in Tokyo. Atom, which forecast that a tweak may happen next year, said banks could climb another 30 percent not only because of potential changes in policy, but also because price-to-book ratios are low. The firm uses a “bottom-up” strategy, analyzing financial ratios as well as analyst consensus.

The former Citadel fund manager said Atom bought bank shares in December when the BOJ surprised the market by doubling the cap on 10-year government bond yields. Tsuchiya also said Japanese stocks are enjoying an inflow of foreign funds as attention shifts away from China due to its faltering economy.

Higher yields are unlikely to pressure the capital ratios of Japan’s largest banks, thanks to the low durations of their holdings of Japanese government bonds, Bloomberg Intelligence analysts Pri De Silva and Adrian Sim wrote in a note.

“It will become difficult to suppress inflation under two percent in the next three years,” Evarich’s Uda said. ““Banks will double within one and a half years.”