The Bank of Japan concluded a two-day monetary policy meeting on March 19th and decided to lift its negative interest rate policy. The Bank of Japan has set policy interest rates in the range of 0% to 0.1%. This is the first time in 17 years that the Bank of Japan has raised interest rates since February 2007.
What is the impact of exiting negative interest rates?
The forward-looking views of CICC Research on the 18th are as follows:
1. After exiting negative interest rates, it is expected that the Bank of Japan will increase interest rates by a limited amount. Currently, the market expects the Bank of Japan's policy rate to rise by 35bp from -0.1% to 0.25%.
2. What is the impact on Japanese assets? Japanese stocks and yen are under short-term pressure, while the impact of Japanese bonds is limited.
3. What is the impact on global financial liquidity? Reducing the global supply of cheap money puts short-term pressure on financial liquidity.
4. How does it affect US Treasury bonds? There may be upward pressure on US Treasury bonds in the short term, but the downward trend remains unchanged before interest rate cuts.
5. What is the impact on other global assets? Emotional transmission or more important channels. Contracted liquidity supply is limited. Compared to actual liquidity shocks, emotional transmission may be a more important channel in the current situation where valuation and sentiment are fully accounted for.
6. Will it drive some funds to flow back to the Chinese market? There is a seesaw for trading funds in the short term, but in the long term, the fundamentals are still being considered. Some transactional funds may flow in, but sustained foreign investment inflows still need to be based on fundamental improvements. Some hedge funds may choose to seek hedging in the Chinese market based on the short-term pullback risk of hedging Japanese stocks, resulting in a seesaw between the performance of the Chinese and Japanese stock markets and the flow of funds.
The wage price spiral! There are early signs of interest rate hikes
According to CICC research, the rise in inflation expectations has led to a policy shift, and the Bank of Japan may cancel the Yield Curve Control (YCC) and exit negative interest rates.
Inflation, as the anchor point of the Bank of Japan's monetary policy, saw Japan's CPI increase by 2.2% year-on-year in January 2024, exceeding 2% for 22 consecutive months; Core CPI of 3.5%, exceeding 3% for 14 consecutive months; In addition, the preliminary results of the 2024 Spring Battle showed that the Rengo member union, the largest trade union federation in Japan, won an average wage increase of 5.28%, the largest increase since 1991, exceeding last year's wage increase by 3.8%, indicating a strong increase.
Wage increases may drive the "wage price" spiral and form demand driven inflation, and the expected achievement of inflation targets supports the Bank of Japan's adjustment of monetary policy. On the policy path, we believe that the Bank of Japan may focus on canceling YCC and exiting negative interest rates to achieve the normalization of monetary policy.
Huatai Securities also said in the research report that the direction of the Bank of Japan's monetary policy normalization is relatively clear, and interest rates may be raised for the first time in March or April, but the whole process of monetary policy normalization may still be cautious, YCC policy may be adjusted, but the central bank's "backing" of the treasury bond market may not be withdrawn temporarily.