4 ms·

The recent Bank of Japan meeting and its implications for markets

113 points by lawrenceyan 4y ago

yieldcrv 4y ago
Do you think any firms will implode over this? The Yen carry trade has been so reliable over so long that I think many firms would be highly overleveraged on this. Fortunately its not THAT big of an overnight move in the Yen but maybe bond traders got thrown off.
- deleted 4y ago
  [deleted]
DantesKite 4y ago
Curious what impact this will have if any on US markets.
noizejoy 4y ago
Korg, Yamaha and Roland synths will become (even) more expensive :-(
- tshaddox 4y ago
  I’m in the market for a digital piano to replace my aging RD-700SX and I was thinking the exact same thing (except swap in Kawai for Korg).
  - dv35z 4y ago
    After doing research, just got a Yamaha P-515, & been happy with it. What are your requirements?
    - tshaddox 4y ago
      I’m trying to figure out my requirements. I really like the sound of Kawai, and if I decide I really want something portable I’ll probably go for an ES920. But realistically, I probably won’t be carrying it around much at all, and if portability doesn’t matter I’d love to get a console piano with an excellent action like the Kawai CA99. I played that in a show room and was blown away. But it’s like 3x the price of the portable options. The downside of Kawai is that they don’t work as USB audio interfaces, so you can’t use their built-in speakers to connect to a PC and play with VSTs. The Roland FP-90x reportedly has an excellent speaker system, and the Yamaha P-515 presumably has a respectable one as well. I haven’t been able to find either in a showroom yet, but that’s my plan for the new year.
- fomine3 4y ago
  still yen is far weaker than a year ago
dmix 4y ago
I read the entire article closely and I can't grasp why this will affect global capital markets (beyond all Japanese investors control a lot of US treasury bonds). Probably because I don't know what "25 bps" means in context. Anyone care to explain in simpler terms? Is it just that 'volatility' in the global bond market will increase because Japan will stop investing in treasuries?
- niij 4y ago
  Basis points (hundredths of a percent) 25 bps = 0.25%
- NavinF 4y ago
  That's pretty much it. He's saying that buying US bonds is no longer the obvious choice for Japanese investors. That also makes it harder for the US to borrow and fund our 6.27T budget. 0.25% harder
  - thoughtstheseus 4y ago
    Many investors would do well to consider a hedge on the currency risk.
- Ifkaluva 4y ago
  My understanding is that Japanese investors will be slightly less motivated to buy US bonds. Since they are the biggest buyers, this will slightly dampen demand for US bonds. This I guess could play out a number of different ways--potentially the US has to pay higher interest to borrow. Alternatively if the Fed were to soak up bonds it would drive up inflation. Tough to say exactly what will happen once it interacts with all the moving parts of the global financial system.
patientplatypus 4y ago
creakingstairs 4y ago
Note: I'm just a layperson. I'm probably going to be wrong on this. I had wondered just how long could BOJ keep their rate while US fed is now 4.5% and is signalling going up to 5% by the end of next year. As a result, the yen was getting weaker day by day and annual inflation was 3.7% in November. Inflation was what the Japanese government wanted and they've finally got it. But the problem now is that while the Japanese companies have been getting richer thanks to weaker yen, the wage has not been gone up to match the inflation resulting in the PM asking for firms to raise the wage. [1] Without the wage raise, this series of events has made the average Japanese citizen effectively poorer - and obviously people aren't too happy about it. I'm guessing this factored into making this decision. [1] https://www.japantimes.co.jp/news/2022/10/04/business/economy-business/japan-raise-wages-fight-inflation/ https://www.japantimes.co.jp/news/2022/10/04/business/econom... EDIT: Looking more into this, this move was kinda signalled in the September meeting. > Broadening price rises in Japan prompted some central bank policymakers to warn last month that inflation may overshoot expectations, highlighting the challenge Bank of Japan Gov. Haruhiko Kuroda faces in justifying ultralow interest rates. > One board member went as far as saying *the BOJ must eventually communicate an exit strategy* from ultraeasy policy, a summary of opinions at the September meeting showed. [emphasis mine] https://www.japantimes.co.jp/news/2022/10/03/business/boj-inflation-board-debate/ https://www.japantimes.co.jp/news/2022/10/03/business/boj-in...
- timr 4y ago
  They're making lots of noises about how this change wasn't actually to raise rates. Instead, the claim is that it was to "make the bond market work better". That's sort of hilarious, because the way that it "makes the bond market work better" is by making 10-year debt more attractive relative to other bond durations...by raising rates. Japan's government works this way on lots of major decisions. They telegraph the change waaaaaaaay in advance via subtle (but consistent) indirect language, then make a small version of the change while denying the importance of the change, then continue making more change by using the prior change to justify the new change. They love continuity.
- HDThoreaun 4y ago
  Central banks want to cause inflation when they believe unemployment is eminent. Inflation allows companies to effectively cut everyone's wages by x% instead of firing x% of workers. So the question is 1. are they right that there would be large scale layoffs absent the inflation? and 2. Is it better for everyone to get a pay cut or some people to get laid off?
snshn 4y ago
This recession will turn into depression. First major depression with well developed internet and social media, blockchain. Dunno how about you, but I'm stocking up on popcorn.
- b212 4y ago
  And I’m simply scared. How do you even prepare for such an event? I always saved up, invested, but now I feel like it’s all pointless as I’m losing money on every front and savings aren’t that fun with double digit inflation…
  - snshn 4y ago
    Whenever anything bad happens you'll be the first one to know.
  - prewett 4y ago
    It's too early to get scared yet, we don't have any idea what's going to happen. In my opinion, a recession is most likely, but could range from nothing much to serious recession. But then who knows what will happen with Ukraine and possibly Taiwan; war tends to stimulate the economy, but also supply chain disruption. No point in worrying until there's something concrete to worry about. Besides, even in the Great Depression unemployment was only 30% or so, so there's a 2/3 chance you'll have a job in the realistic worst-case scenario. Even better chance if you are in software, it's not like there's been an inflation in good developers. > losing money on every front I assume you mean stocks/housing? I can't speak for housing, but regarding stocks, do you still think the company has good prospects? If so, now everything is cheaper. In fact, stocks have depreciated, so while your cash might not buy as many consumer goods, it will buy more stocks than before! I think the market still has at least 10% more to go, the S&P is only down from it's all-time pandemic-bubble high, and interest rates are 4% higher. There's been no "capitulation" as far as I can tell--two weeks ago the market went up after the Fed said that money is getting less valuable a little less quickly (that is, inflation is a little less large than before), because the Fed might stop raising rates. Well, maybe, but interest rates are still 4%... Anyway, when the market falls is a great time to buy! "Be greedy when others are fearful"
remote_phone 4y ago
Does this mean that Japanese investors will sell UST and buy JGB, causing ust rates to go further up?
rsync 4y ago
Can we get a Lyn Alden take on this ? I've been disappointed that she has had such low posting volume over these past months of very interesting market developments ...

113 points by lawrenceyan 4y ago

Do you think any firms will implode over this? The Yen carry trade has been so reliable over so long that I think many firms would be highly overleveraged on this. Fortunately its not THAT big of an overnight move in the Yen but maybe bond traders got thrown off.

deleted 4y ago
[deleted]

DantesKite 4y ago

Curious what impact this will have if any on US markets.

noizejoy 4y ago

Korg, Yamaha and Roland synths will become (even) more expensive :-(

tshaddox 4y ago
I’m in the market for a digital piano to replace my aging RD-700SX and I was thinking the exact same thing (except swap in Kawai for Korg).
- dv35z 4y ago
  After doing research, just got a Yamaha P-515, & been happy with it. What are your requirements?
  - tshaddox 4y ago
    I’m trying to figure out my requirements. I really like the sound of Kawai, and if I decide I really want something portable I’ll probably go for an ES920. But realistically, I probably won’t be carrying it around much at all, and if portability doesn’t matter I’d love to get a console piano with an excellent action like the Kawai CA99. I played that in a show room and was blown away. But it’s like 3x the price of the portable options. The downside of Kawai is that they don’t work as USB audio interfaces, so you can’t use their built-in speakers to connect to a PC and play with VSTs. The Roland FP-90x reportedly has an excellent speaker system, and the Yamaha P-515 presumably has a respectable one as well. I haven’t been able to find either in a showroom yet, but that’s my plan for the new year.
fomine3 4y ago
still yen is far weaker than a year ago

dmix 4y ago

I read the entire article closely and I can't grasp why this will affect global capital markets (beyond all Japanese investors control a lot of US treasury bonds). Probably because I don't know what "25 bps" means in context. Anyone care to explain in simpler terms? Is it just that 'volatility' in the global bond market will increase because Japan will stop investing in treasuries?

niij 4y ago
Basis points (hundredths of a percent) 25 bps = 0.25%
NavinF 4y ago
That's pretty much it. He's saying that buying US bonds is no longer the obvious choice for Japanese investors. That also makes it harder for the US to borrow and fund our 6.27T budget. 0.25% harder
- thoughtstheseus 4y ago
  Many investors would do well to consider a hedge on the currency risk.
Ifkaluva 4y ago
My understanding is that Japanese investors will be slightly less motivated to buy US bonds. Since they are the biggest buyers, this will slightly dampen demand for US bonds. This I guess could play out a number of different ways--potentially the US has to pay higher interest to borrow. Alternatively if the Fed were to soak up bonds it would drive up inflation. Tough to say exactly what will happen once it interacts with all the moving parts of the global financial system.

patientplatypus 4y ago

creakingstairs 4y ago

Note: I'm just a layperson. I'm probably going to be wrong on this. I had wondered just how long could BOJ keep their rate while US fed is now 4.5% and is signalling going up to 5% by the end of next year. As a result, the yen was getting weaker day by day and annual inflation was 3.7% in November. Inflation was what the Japanese government wanted and they've finally got it. But the problem now is that while the Japanese companies have been getting richer thanks to weaker yen, the wage has not been gone up to match the inflation resulting in the PM asking for firms to raise the wage. [1] Without the wage raise, this series of events has made the average Japanese citizen effectively poorer - and obviously people aren't too happy about it. I'm guessing this factored into making this decision. [1] https://www.japantimes.co.jp/news/2022/10/04/business/economy-business/japan-raise-wages-fight-inflation/ https://www.japantimes.co.jp/news/2022/10/04/business/econom... EDIT: Looking more into this, this move was kinda signalled in the September meeting. > Broadening price rises in Japan prompted some central bank policymakers to warn last month that inflation may overshoot expectations, highlighting the challenge Bank of Japan Gov. Haruhiko Kuroda faces in justifying ultralow interest rates. > One board member went as far as saying *the BOJ must eventually communicate an exit strategy* from ultraeasy policy, a summary of opinions at the September meeting showed. [emphasis mine] https://www.japantimes.co.jp/news/2022/10/03/business/boj-inflation-board-debate/ https://www.japantimes.co.jp/news/2022/10/03/business/boj-in...

timr 4y ago
They're making lots of noises about how this change wasn't actually to raise rates. Instead, the claim is that it was to "make the bond market work better". That's sort of hilarious, because the way that it "makes the bond market work better" is by making 10-year debt more attractive relative to other bond durations...by raising rates. Japan's government works this way on lots of major decisions. They telegraph the change waaaaaaaay in advance via subtle (but consistent) indirect language, then make a small version of the change while denying the importance of the change, then continue making more change by using the prior change to justify the new change. They love continuity.
HDThoreaun 4y ago
Central banks want to cause inflation when they believe unemployment is eminent. Inflation allows companies to effectively cut everyone's wages by x% instead of firing x% of workers. So the question is 1. are they right that there would be large scale layoffs absent the inflation? and 2. Is it better for everyone to get a pay cut or some people to get laid off?

snshn 4y ago

This recession will turn into depression. First major depression with well developed internet and social media, blockchain. Dunno how about you, but I'm stocking up on popcorn.

b212 4y ago
And I’m simply scared. How do you even prepare for such an event? I always saved up, invested, but now I feel like it’s all pointless as I’m losing money on every front and savings aren’t that fun with double digit inflation…
- snshn 4y ago
  Whenever anything bad happens you'll be the first one to know.
- prewett 4y ago
  It's too early to get scared yet, we don't have any idea what's going to happen. In my opinion, a recession is most likely, but could range from nothing much to serious recession. But then who knows what will happen with Ukraine and possibly Taiwan; war tends to stimulate the economy, but also supply chain disruption. No point in worrying until there's something concrete to worry about. Besides, even in the Great Depression unemployment was only 30% or so, so there's a 2/3 chance you'll have a job in the realistic worst-case scenario. Even better chance if you are in software, it's not like there's been an inflation in good developers. > losing money on every front I assume you mean stocks/housing? I can't speak for housing, but regarding stocks, do you still think the company has good prospects? If so, now everything is cheaper. In fact, stocks have depreciated, so while your cash might not buy as many consumer goods, it will buy more stocks than before! I think the market still has at least 10% more to go, the S&P is only down from it's all-time pandemic-bubble high, and interest rates are 4% higher. There's been no "capitulation" as far as I can tell--two weeks ago the market went up after the Fed said that money is getting less valuable a little less quickly (that is, inflation is a little less large than before), because the Fed might stop raising rates. Well, maybe, but interest rates are still 4%... Anyway, when the market falls is a great time to buy! "Be greedy when others are fearful"

remote_phone 4y ago

Does this mean that Japanese investors will sell UST and buy JGB, causing ust rates to go further up?

rsync 4y ago

Can we get a Lyn Alden take on this ? I've been disappointed that she has had such low posting volume over these past months of very interesting market developments ...