Need to Know: Here’s how U.S. investors can position themselves for the sea change out of Japan, according to Bank of America and Citi

Bank of America strategists led by Michael Hartnett say the move means there’s a higher floor for global interest rates. Deflationary Japan had set the floor for global interest rates for the last 30 years, but now that’s changing, and the Bank of Japan may get rid of yield curve control altogether next year. The investment implications? They’re bullish for commodities but not credit, equities outside the U.S., small caps, value stocks, industrials and banks.

In particular, higher Japanese yields will mean a bull market for Japanese banks, the BofA strategists say. And they note that banks and real estate have historically outperformed when Japanese government bond yields rise.

It’s not just Bank of America making that call. Strategists at Citi say going long Japanese banks, in U.S. dollars, has always been its preferred way to position for a Bank of Japan shift. At 0.6 price-to-book value, they are still well below their levels before yield curve control. In particular, they like Mitsubishi UFJ Financial Group
8306,
+3.28%
and Resona
8308,
+2.28%,
the Citi strategists say.

The buzz

The core PCE price index rose 0.2% in November, as expected. The same report also showed a 0.4% rise in personal income and a 0.1% increase in consumer spending. Separately, durable-goods orders fell 2.1%.

U.S. stock futures
ES00,
-0.55%
 
NQ00,
-0.91%
initially turned lower after the inflation data, but then turned higher, with the S&P contract up 0.3% in recent trade. The yield on the 10-year Treasury
TMUBMUSD10Y,
3.735%
rose to 3.72%.

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Also due to be released will be durable-goods orders for November, and at 10 a.m., the final University of Michigan consumer sentiment reading, as well as new-home sales.

Tesla
TSLA,
-3.09%
CEO Elon Musk said he “definitely” won’t sell any more stock in the automaker in the next year, and probably not in the year after.

FTX founder Sam Bankman-Fried was released on $250 million bail after returning to the U.S.

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