(Bloomberg) -- Japanese money is poised to stay offshore as the central bank creeps toward tighter policy, according to the latest Bloomberg Markets Live Pulse survey.

Only about 40% of 273 respondents said the first interest-rate hike by the Bank of Japan since 2007 will prompt the nation’s investors to sell foreign assets and repatriate the proceeds back home. That’s good news for US stocks and bonds.

A limited rise in the BOJ’s policy rate may keep yield gaps between the Asian nation and other major economies too wide for Japanese investors to cross. That’s likely to soothe concerns that a historic shift in policy will have a profound impact worldwide due to their massive $4.43 trillion holdings of foreign securities. 

“We’re seeing large retail outflows into foreign bonds and equities and I don’t think the end of the BOJ’s sub-zero rate policy will change this trend,” said Hideo Shimomura, a senior portfolio manager at Fivestar Asset Management Co. 

Japanese money headed to the US and the Cayman Islands over the past decade or so, seeking higher returns.

Even amid mounting speculation about a BOJ policy change, Japanese investors bought ¥3.5 trillion of foreign bonds in the first two months of this year after scooping up ¥18.9 trillion in 2023, the most in three years. Individuals’ purchases of overseas equities also rose in recent months.

BOJ board members will discuss whether they can abolish the world’s last negative-interest-rate policy at a two-day meeting ending March 19. Overnight-indexed swaps on Friday signaled a 67% chance of such a move.

By the end of the year, 73% of the poll participants expect the BOJ to raise the short-term interest rate to somewhere between 0.01% and 0.5%, from minus 0.1% currently. Even if the central bank raises the policy rate to 0.5% by the end of 2024, it would still be about 400 basis points lower than the US equivalent, overnight-indexed swaps show, boding ill for the Japanese currency.

The yen has slumped about 10% in the past year against the dollar, the most among the 16 major currencies tracked by Bloomberg, as central banks outside Japan tightened policy aggressively to rein in hot inflation. BOJ officials, meanwhile, are waiting for signs that inflation is set to stick at or above 2%, backed by higher wages.

Of the Pulse respondents, 69% said the yen may end this year between 120 and 140 per dollar. The yen traded at around 149 on Friday. Currency strategists expect a rally in the yen to be limited to just a few percent.

“Any yen strength on tightening news with a benign signaling is prone to get reversed very quickly,” said Alan Ruskin, chief international strategist at Deutsche Bank AG. 

The limited upside to the yen would be positive for Japanese stocks.

The Nikkei 225 Stock Average reached a record high this year with a boost from a weak currency, accommodative monetary policy and the Tokyo bourse’s push to improve corporate governance. Japan’s stock gauge returned 45% in the past year, including reinvested dividends, compared with a gain of 34% in the S&P 500 Index and that of about 30% in the MSCI World Index.

The fact that Warren Buffett’s purchases of shares in Japan’s major trading companies were financed mostly with low-yielding yen bonds highlights how investors have benefited from the BOJ’s easy monetary policy.

The survey participants were also relatively sanguine about Japanese stocks, with 45% of them saying the equities remain structurally cheap.

“There will be a dip in the market but I don’t think that means we will be entering a downtrend,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “Should the dollar-yen fall to around 120, share prices will be affected but that’s unlikely.”

The MLIV Pulse survey was conducted among Bloomberg News readers on the terminal and online March 11 to March 15 by Bloomberg’s Markets Live team, which also runs the MLIV blog.

--With assistance from Michael Mackenzie.

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