(Bloomberg) -- The possibility of a more hawkish tilt by the Bank of Japan at this week’s policy meeting means it may be too early to call time on the rallies in banks and other value stocks.

Persistent weakness in the yen is raising alarm about damage to the economy, fueling speculation that Governor Kazuo Ueda may signal in Friday’s policy decision that more tightening is on the way. Interest rate derivatives are now indicating a hike to 0.25% by October.

That’s helping put the focus back on banks and other companies that may benefit from higher rates and a stronger local currency. A gauge of lenders is up 29% from a December low, nearly doubling the gain in the benchmark Topix.

“Ueda will take into consideration the impact of the yen’s weakness — while a rate hike at this meeting is unthinkable, he may drop a hint of a future hike,” said Masayuki Murata, general manager of balanced portfolio investment at Sumitomo Life Insurance Co. “This is why bank shares have been rising lately.”

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After outperforming for the past couple of years, concerns had grown that the value-stock trade had run its course with the BOJ ending its negative interest rate policy in March. The perception that the central bank will be slow to further tighten policy has also raised doubts.

“A lot of investors appears to be thinking the BOJ’s tightening is done for now with the end of the negative interest rates,” said Chisa Kobayashi, Japan equity strategist at UBS SuMi TRUST Wealth Management. “But in the longer run, the BOJ is likely to head for further tightening and that seems to be overlooked.”

The yen slipped beyond 155 per dollar this week for the first time in more than three decades, raising speculation that Japanese policymakers will take steps to curtail its weakness. With the impact of possible intervention seen having limited impact, the task of stemming the yen’s decline may rest on Ueda’s shoulders. 

Tighter policy would be a boon for banks, which benefit from higher rates on loans and investments, as well as the broader scope of value stocks. While the appeal of growth stocks is based on future earnings, value stocks are prized for their current cashflows, making them less susceptible to higher rates.

With members including the Japanese trading houses that attracted investment from Warren Buffett as well as the banks and other old economy stocks, the value cohort has already outperformed. Along with benefits from the Tokyo Stock Exchange’s campaign to improve corporate valuations, a more hawkish BOJ may provide a reason to not cash out yet.

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