BOJ’s Hawkish Stance Is Boosting Demand for U.S. Corporate Bonds

The Bank of Japan headquarters in Tokyo on January 24, 2025. Photographer: Akio Kon/Bloomberg.

Interest rate hikes from the Bank of Japan (BOJ) should help cut currency protection costs for Japanese investors, spurring their appetite for U.S. investment-grade corporate bonds, according to Bank of America Corp.

The BOJ raised its key policy rate last month to the highest level since 2008 amid projections for higher inflation, fueling expectations for further rate hikes and a flatter yield curve for Japanese government bonds. That ought to lower foreign exchange (FX) hedging costs and improve the relative value of U.S. high-grade bonds, stimulating Japanese demand for them, BofA strategists including Yuri Seliger wrote in a note on Tuesday.