The global market seems to have not yet calmed down!
Just now, as the Japanese stock market was approaching closing, a plunge hit again. The Nikkei 225 index, which had originally risen by over 3%, quickly fell during the closing period, with the index only slightly rising by over 1%. The South Korean stock index also followed the Japanese stock market to break away from its high and slightly decline. It is worth noting that the Japanese yen, which had previously depreciated significantly, began to strengthen after 1:30 pm Beijing time.
So, what exactly happened? This morning, the statement by the Deputy Governor of the Bank of Japan, Maki Uchida, led to a significant depreciation of the Japanese yen. But according to the afternoon news, Deputy Governor of the Bank of Japan, Maki Uchida, believes that even after the interest rate hike, Japan's real interest rates are still deeply negative and the financial environment is still very loose. And he also stated that concerns about the US economy are affecting the global market. The meaning of this statement seems to be interpreted by the market as the probability of Japan raising interest rates has not decreased, and there is suspicion that the Bank of Japan is blaming the United States.
The Swinging of the Bank of Japan
Last week, the Bank of Japan raised interest rates to the highest level in 15 years and released detailed information on slowing down its large-scale bond buying program, taking another step towards gradually withdrawing from the decade long massive stimulus policy.
Bank of Japan Governor Kazuo Ueda stated that if the economic and price trends align with his predictions, the Bank of Japan will continue to raise interest rates, indicating the possibility of steady rate hikes in the coming years. These tough statements, coupled with weak US labor data last week, have raised concerns about the world's largest economy falling into recession, leading to a sharp decline in global markets and a surge in the yen. The Nikkei average index in Japan experienced a sharp drop on Monday.
Subsequently, this morning, the influential deputy governor of the Bank of Japan, Maki Uchida, stated that the central bank would not raise interest rates during market instability and downplayed the possibility of a short-term rate hike. Sanaichi Uchida stated that if the intense market volatility of the past week affects the Bank of Japan's economic and price forecasts, as well as the possibility of Japan continuing to achieve its 2% inflation target, then this "obviously" will change the Bank of Japan's interest rate hike path.
During a speech to business leaders in the northern Japanese city of Hakodate, Masaichi Uchida stated, "Due to the significant fluctuations in domestic and international financial markets, it is necessary to temporarily maintain the current level of monetary easing." Uchida said that the recent strengthening of the yen will affect the policy decisions of the Bank of Japan, as it reduces the upward pressure on import prices and thus lowers the overall inflation level. These remarks are in stark contrast to the previous statements made by Kazuo Ueda.
This afternoon, there were comments from Shinichi Uchida again. He stated that even after the interest rate hike, Japan's real interest rates remain deeply negative and the financial environment remains very loose. In a mild interest rate hike environment, the Bank of Japan has the advantage of choosing the timing of interest rate hikes. And he also stated that concerns about the US economy are affecting the global market. A soft landing in the United States is possible, but not 100% certain.
After this statement was made, the Japanese stock market plunged in the late trading session, and the Nikkei 225 index, which had originally risen more than 3%, began to decline, closing only slightly higher than 1%. It is obvious that the Bank of Japan's vague and evasive attitude still has a significant impact on the market.
Toru Suehiro, an economist at Daiwa Securities, said that Shinichi Ueda's comments were obviously dove like. Unless market sentiment quickly recovers, the likelihood of the Bank of Japan raising interest rates in September or October is low. But if concerns about a US economic recession subside before the end of the year, the Bank of Japan may raise interest rates in December.
Will the oscillation continue?
Judging from the trend of the Japanese stock market today, the market may be more inclined towards "continued volatility".
HSBC strategists say there have been concerns of a "triple blow" in recent days, including the lifting of arbitrage trading, monetization of artificial intelligence, and the prospect of the US economy falling into recession. It's too early to buy now, but fundamentals still have broad support. Given the negative wealth effects and tightening credit conditions, the biggest risk at present is self triggered selling, which will ultimately lead to an economic recession.
Kit Juckes, Chief Foreign Exchange Strategist at Societe Generale, stated in a recent research report that large-scale arbitrage liquidation is underway. Many people are unable to resolve the world's largest arbitrage trade in history, and the biggest reaction in the foreign exchange market is still to "reduce positions". The long positions of Australian dollar, British pound, Norwegian krone, and US dollar against Japanese yen have all been reduced.
Galaxy Securities believes that currently, the Japanese stock market still faces certain downward pressure in the short term, and it is difficult to recover to the high level of 42000 points. It is expected to maintain a volatile pattern after sufficient downward adjustment. In the medium to long term, the trend of Japanese stocks is more dependent on changes in fundamentals, and there are still some core supports. But we should be cautious of the following risks. Firstly, there are fluctuations in overseas markets; Secondly, the pace of Japan's economic recovery may be slow, and the structural problems that constrain the Japanese economy will continue to exist, putting pressure on the Japanese stock market; Thirdly, if the Bank of Japan is more hawkish than market expectations in terms of timing or pace.
Huatai Securities believes that before the rapid appreciation of the Japanese yen and the significant adjustment of the Japanese market, the Japanese economy was in a re inflation channel, and there were signs of accelerated domestic demand growth. However, if the Japanese yen appreciates too quickly and the Japanese stock market falls too quickly, causing a sharp tightening of financial conditions, the momentum of re inflation may also be negatively affected. If the Japanese government can intervene in a timely manner to block the market's "negative feedback" mechanism and maintain relatively loose monetary and fiscal policies, Japan is still expected to continue its moderate trend of re inflation. The process of Japan's re inflation may ultimately be accompanied by the appreciation of the yen, and whether Japan's nominal growth and corporate profits can break free from the "weak yen dependence" is the key to whether the Japanese market can recover or even continue to move forward amidst fluctuations.