The Market Situation Report is a condensed version of our institutional newsletters, infused with a touch of humor. We plan to release it daily, right before the opening of the US market, and present it in a most familiar format to retail traders’ eyes by using Tradingview charts and Memes. To learn about the incentives behind it you can visit the link below.
What is going on with the Bank of Japan?
First of all, before reading this report head to the market sitrep #6 and read that article because it contains many invaluable data.
The Bank of Japan (BOJ), a key player in global interest rates and a safeguard against Central Bank balance sheet losses, has begun raising interest rates for the second time. After incurring significant losses on the USDJPY exchange rate, the BOJ and the Ministry of Finance (MOF) have concluded that the current economic conditions are not benefiting Japan and could lead to high inflation. Consequently, the BOJ aims to increase rates to manage the carry trade on USDJPY.
Although the rate change might seem minor, historically, it has negatively impacted the NIKKEI and tech stocks. The effect on the NIKKEI is usually immediate, while tech stocks often experience a delayed decline.
Another point to consider is that rate hikes in Japan often align with rate cuts in the US. It is unlikely that this situation will deviate from the norm, as the Fed typically acts when other central banks are reducing market liquidity, affecting the demand for US Treasury securities.
Historically, these events lead to a lower DXY and higher gold prices.
While Japan’s yen appreciation is beneficial for the US, Japan’s demographic challenges might make a stronger yen against the USD less favorable for them. In summary, future decisions will depend on the BOJ’s stance on the USDJPY rate. If they determine that the current level of 147 is insufficient to control inflation, they may maintain high interest rates for an extended period, which could push the NIKKEI lower.
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