Brothers and sisters, take a brief look at the big news of Japan.
Is the Bank of Japan going to raise interest rates?
During this period, the bullish performance of the Japanese stock market has attracted global attention, but over the weekend, there was a big bearish news!
The news came from the market that the Bank of Japan was considering canceling its yield curve control plan, and instead indicated the scale of treasury bond bonds it planned to buy in advance. As part of the normalization of monetary policy, the Bank of Japan will stop its plan to guide the yield of benchmark 10-year treasury bond to around 0%, and will make a decision on this at the next policy meeting on March 19, and end the negative interest rate policy as soon as possible. The goal of the new framework is bond purchase volume, not yield. The Bank of Japan plans to purchase nearly 6 trillion yen (41 billion US dollars) of bonds per month, roughly equivalent to current levels.
Four sources familiar with the Bank of Japan's ideas said that an increasing number of Bank of Japan policy makers are taking a positive attitude towards the idea of ending negative interest rates this month, as they expect solid results in this year's annual wage negotiations.
The confidence of the Bank of Japan in achieving inflation targets is increasing day by day. Bank of Japan member Shunko Nakagawa stated on Thursday that the Japanese economy is steadily moving towards the 2% price target set by the authorities. Governor Kazuo Ueda also told parliament that the certainty of achieving the Bank of Japan's price targets is gradually increasing.
As soon as the news came out, the Japanese yen continued to appreciate, and Nikkei stock index futures plummeted.
What is the impact of Japan's interest rate hike on the stock market?
The traditional view holds that there is a negative correlation between the Japanese yen and the stock market. The reason why a strong yen is unfavorable to the stock market is because it will weaken Japan's competitive position in exporting products and also cause overseas profits to be depreciated after being converted into yen.
According to statistics, there was a strong negative correlation between the Japanese yen and the Nikkei 225 index from 2007 to 2019. However, during the COVID-19 epidemic, this relationship was greatly weakened.
Amir Anvarzadeh, a Japanese stock market strategist at Asymmetry Advisors, said that if the yen rises to 140 against the US dollar, the huge driving force behind corporate profits will disappear.
Kazuo Momma, an executive economist at Mizuho Research Institute, believes that the improvement in corporate profits may only be temporary. He expects that the Nikkei index will not continue to rise significantly in the future, and there may be some adjustments in the coming weeks or months.
He said that if the Nikkei index falls to 36000-37000 points at some point in the year, I wouldn't be surprised, and even if that happens, the Nikkei index may recover to 40000 points by the end of the year.