We are getting a hot headline from the Bloomberg terminal. Bank of Japan sets policy rate in a range between zero to ten basis points, so a big move and scrapping the ill curve control program. So the sources at the nie K seem to be well placed. Martin, what reaction might you have to what we're learning now?
This is what we were expecting. So we got kind of glad that it actually happened, and we didn't get a kind of shock. Oh no, no, they are not doing anything. They chose a perfect timing more or less. So this seems to be quite welcome by markets who have been tested before. So let's see how Japan is now working with the normalization.
We're not actually seeing a huge change in dollars yen. We're moving at the moment one fifty or so, so that's pretty steady. And also in terms of the nie ke, we'd have been on the lunch break, so very interesting to see how those things move. We're getting these flashes now now every couple of seconds. We have David in Glace, one of our market correspondence and also an anchor on Bloomberg Television with us in the studios. David your early thoughts on what we're seeing in markets.
Well, it's a counterintuitive move. We're seeing in the yen. We're weaker in fact here point three percent. And this is to your point, Brian. We're moving really on the second here, a couple of other headlines coming through. So we know most of these because of all the leaks that have taken place. Right, So, they've scrap yield curve control, they've raced rates for the first time since two thousand and seven. They've tweaked their acid purchases as well. Nothing
so far I could be mistaken. Still here, they've also ended buying ets. Now just taking a step back, right, So I was having a look at some market measures going into this meeting today, and what really called my eye were yen ten year swaps. And you look at how behaved that gauge has been. In fact, that was really bid up substantially in previous meetings on the back of expectations of what we'd get. What we did get
right now, that's actually you remained in range. In fact, the spread and this is going to sound like Greek, but I'll explain it in a bit. The spread between the ten year swap and a tenure yield is actually now back to the narrowest since the Fed started raising interest rates in twenty twenty two, which tells me the market was expecting this. It's number one and number two. It looks like for now the BOJ is done right.
We'll have a separate conversation on what whether or not they need a second rate hike, but for now it seems like they've done what they needed to do.
Interesting, and bond buying will continue. We're getting a hot headline that the BOJ will continue buying jgbs with broadly the same amount as before. What is missing here is obviously a target in the yield curve here. I mean, so, are they going to be much more clandestined in moving in the marketplace? Are they going to be less transparent? What do you think it?
I think again, no one's surprised by this news. Dollar yen's not moving anywhere, because on purpose, we were all told what was going to happen. No. I think they're going to favor a managed information process where they don't want to shock the market in a way. They've achieved exactly what they wanted here, Delian. Actually nothing's changed. They're getting out of buying ETFs, because that's a long term
problem for them how to unwind the ETF purchases. You can always buy more bonds, and I remember having this conversation with guys on the BOJA ten years ago. They can hold a bond until it runs out. Disposing of an ETF is a different issue altogether, and I believe this indicates some level of confidence by the way that consumers are returning to buying equities and they don't have to engage in that behavior any further.
It is interesting that the vote was not unanimous. It was seven to two to scrap the negative interest rate. That's closer than what some people expected. Martin. Can we read anything into that or is that something that you know you'd figure on a move as big as this, that there might be a little dissent.
Not really.
I mean, there are people who are just looking at the economy, and the economy has been slowing. So if you would be just looking and well reading the data, looking only in your domestic economy, then there is a good reason to keep policy more expansionly, not to increase interest rates. On the other hand, the Bank of Japan has been driven and the government has recognized that as well by the very weak yend. So this is an important variable that you don't have to take, but it
affects policy. Plus by sentiment overall that well, the economy is normalizing, the policy should be normalized as well. This is the overwhelming mood around well people in industry and also in the Bank of Japan.
You know, ed made an interesting point David and Glace about the effect that the equity market is having maybe on the to community in Japan, and I'm wondering if you can imagine how that may have impacted the thinking at the BOJ when you're looking at an ek that's not far from an all time high.
Interesting a question. In fact, this came up about two hours back on the TV show Man Group was on, and certainly to your point at this point in the rally forty thousand, right, you know how you know what exposure to you this one one with the in the Japanese equity market. And the interesting point from our guest is that is the biogen what they're doing. Now you could look at that as simply a symptom of the
underlying change that's taking place in the economy. Right, Two things there, right, One is the economy is normalizing, right, so they enter this ultra aggressive policy stands I think thirteen years ago. I just joined Bloomberg then, and that was when Caroroda was coming in April of course, twenty thirteen,
that's when they embarked in this. And you know, eleven years after that they've managed to achieve two percent, right, which and they're coming out with in fact guidance and inflation they're saying will likely remain above two percent through fiscal twenty twenty four. But here's the interesting part too. They've also downgraded their assessment on consumer spending and production. So job done, but job done not just yet. So the part I'm trying to make is what exposure does
one want for man group? They think it's time to go to small caps because that's the part of the equity market that might not be as exposed to a stronger yet in case the yen strengthens from here.
So the end hasn't really moved all that much at the moment, trading at one forty nine eighty four, so it's actually weakened a little here, and that's a pattern that we've seen. Nick had been lower but now is higher, moving up around about ninety five points or so a quarter of one percent. Let me go back to ed Rodgers in terms of looking at the equity market that question that David was dressing earlier about whether or not
it's getting close to being tapped out. I think you were one one of the first ones who told me that in looking at Japanese companies, they're sort of like a warrant on global growth. Do you think that the games that we've seen in the nik are signaling a little bit that global growth is coming back.
I think there's optimism, yes, and definitely that small MidCap space in Japan has in many ways been a harbinger and foreshadowing of a global global you know, to play on the global economy in many respects. I'll still stand by those statements.
The kind of.
Leveraged if you will exposure you can get in that space for certain parts of the globe economy are absolutely real. And the differentiation that we're going to now see in that space is also I think going to be real. You know, some of those companies that won't have access to chief capital or free money anymore, it's going to have impact on their businesses. You know, in addition to other things, you know, lack of labor and other things.
You can talk about a lot of things, but oh yes, I'd still stand by those datements.
Ed Rodgers is the CEO also CIO of Rogers Investment Advisors, joining us as we continue our special coverage of the BOJ decision, with the Bank of Japan hiking interest rates a target range night between zero and ten bases points. The BOJ also ending yield curve control, the last country
essentially to exit negative interest rates. Joined by Bloomberg's Brian Curtis, co host of Daybreak Asia, Day to Dating, Glace is with US, host of one of the Bloomberg TV shows in Hong Kong, and Martin Schulz is with US chief economist at Fujitsu. Martin, we were talking a moment ago about the drag that the Chinese economy, the weak Chinese economy,
is having on Japan. You know, recently there's been a little bit of conversation about the parallels between what China may be facing now in deflation and what Japan has been struggling with for what's seems like three decades.
Now.
Do you think policymakers in Beijing have really looked at the mistakes that Japan may have made over the last thirty years and are learning from them absolutely.
I mean the Japanese how to deal with a real estate of financial bubble has been one of the main cases in any textbook. The Chinese government is very well aware that their growth model, with a huge amount of investment into infrastructure investment in particular, has been driving the economy and this needs to change towards more consumer spending, towards a more domestic driven economy that is focusing on technology, on digital digital technologies. This is what they've been focusing on.
They have been studying the Japanese case very very well. The problem is it remains to be hard. Such a change is really a significant problem. China knows it will have to expand well it exports somehow, which will have to go into Asia. We should expect to see this in the future, and that they have to deal with the well more technology driven companies that have been growing so much. This is why the policy makers are probably so very careful with their technology giants. They are not sure.
They know that they have to rely on them, but they are not sure if they can control them. Figuring out the right way forward. Here will be a major major challenge for policy makers in China over the next few years.
David's something we touched on a little bit earlier in this hour when we were waiting on the bog announcement. We were sort of musing over what might happen with the holdings, the existing holdings of ETFs and reads. Now we see today that they have scrapped the purchases of these and we understand they haven't actually been buying all that much of late, but they still have those large holdings. We put it to the other guests, what might happen.
Do you think that it's sizeable enough that it could weigh on the levels of the equity market injine And if they start to sell now? And would they.
Good question if I had If I had the answer, I'd be sitting on a sunny beat somewhere else with a very expensive cocktail.
We can't get inside their minds, can't wait.
The interesting thing though, is the is the vote on the purchases right, So it seems that the vote on policy is seven to two and two, yeah, but it's eight to one on JGBS on the purchases as well, So that you have a slightly more slightly larger majority there if you will on ETFs, I mean you have an incremental buyer now right. You know, I haven't done the math, but you do have an incremental buyer outside
of BOJ at the moment. And I'd still be interested to see what they'll do with all the jgb's under balance beat right, and they can hold that for a.
Veran It wouldn't be interesting if they set up a scheme just like the FED in QT when they finally decide to dispose of a lot of what they've bought that it just becomes kind of like machine.
Like, Yeah, and shrinking the balance sheet. Right, Yeah, that's a good point because the Feds tomorrow and something else that came up on shows today. You look at what's happening in the US equity market, you look at risk assets, you look at crypto, You look at where copper is eleven month highs, you look at oil at four month highs, SMP. It doesn't seem that what the Fed's telling us is true,
you know, if it's been saying policies restrictive enough. You look at markets, it looks like there's enough liquidity out there.
Yeah, I would agree with that, Martin. I know that you've been with us for much of the hour, and I want to thank you, Martin Schulz, a chief economist at Fujitsu, for joining us on our special coverage of the decision from the Bank of Japan at Rogers of Rogers Investment Advisors. Stay with us. I'm looking at the
WEI function now in the Bloomberg terminal. We're seeing a weaker NK down only two tenths of one percent and the end pulling into one forty nine sixty five thereabouts, with a loss against the greenback of about three tenths of one percent. But if you look inside the NK right now, anything that's interest rates sensitive, real estate, utilities, financial shares push to the upside. Seeing a little bit
of weakness in healthcare and consumer discretionary. David, you were making a point earlier about the relative strength of the n K, and I'm wondering whether or not we should kind of read into that that maybe at the margins had something to do with the decision today on the Bank of Japan.
Most likely in fact the NICK and also when they look at the Bank's index right because the Topics Bank index has really been a boj trade that's actually up right now, I'm getting more details on the statement, and you know what this is actually looking And I could be wrong, and the next yards could prove me wrong. We'll see what they say in the press briefing. But the headlines that are coming through right now are tilting this narrative more in favor of this being actually a
doubvish move. Right, So fine, first rate hikes in two thousand and seven, and notwithstanding it's just barely above zero, but the bog is coming out and saying that they had increased GG be buying if rates writes rapidly, So it's looking like they'll be there to keep rates steady.
Well, yeah, that's that's what we thought was the case, because if you scrap everything, you know, you might have yields running to the upside. So when I saw that Nick story that they would continue with government bond purchases but scrap YCC, it gives them more control in the market. It gives them the freedom to get in there and buy you know, when and where they see, and they can they can guide the yield to a level that
they feel comfortable with. And we were speculating what would that level be, you know, would it be one percent, would it be one and a half percent. Let's go back to ed Rodgers ed anything that you've been seeing here in some of the latest flashes that catch your attention, that that might show that the market is somehow in or out of favor with what the boj would like to see.
So I got the same we I open. I got the say, btmm, interest rates aren't really moving.
It bounce around a little bit, you know from playing.
But this is such a non event, which because we've all been predicting it for a while, and they told us what the trigger was going to be like when you saw the wage the conclusion of the wage high, right, it was kind of obvious. Now we're there. What the other thing I'm watching on Bloomberg is, you know every grand loses seventy eight billion dollars. You know, it's eight times the accounting fraud, you know, the Enron's and the
world comms. And I think we should be thinking a lot more about what a potential China implosion looks like visa of each Japan Wow, and everybody else by the way too, because there is there is you know, if you go back to the late eighties and the early nineties. When Japan's trouble started, there were a lot of people that would tell you, yeah, well there's one set of boats and another set of boats, and not a whole lot of good disclosure going on at the national level.
You know, Japan's a really good, clean, easy place to do business now for the most part, as is the United States again for the most part. I think China is a real question, and I think we've touched on a couple of times. But if you really want to think about ripple effects, I think that's where you start to think about where the big next big ripple effects
might be felt. And I agree with I think Martin was saying, you know, the Chinese have sort of been studying Japan for a long time about what happened with their real estate. It was a real estate driven crisis, right nine, the peak was a real estate driven crisis. Here you look at two thousand and United State, it's
a real estate crisis. So the impact of a real estate crisis on a large economy, I don't know if anybody's ever really done all the right studies about the level of political, social, and economic impact when it's something that big, and you know that's the bloombird screen. I've been reading a lot of them this morning.
No doubt about that.
It's already priced in. It's already priced in.
It's already priced in well telegraphed. I think you're not surprising, but well telegraphed. Nick Smith is with us. He is Japan strategist at CLSA. On the line, Nick, your reaction to this move by the BOJA to essentially do everything that the knee k said the BOJ would.
Do well, I've been warning of this for quite a while. I got the three hikes right last year and said that would be coming out of negative rates today. So exactly has forecast the questions what you do with your equities from here on in. I mean I've been very long banks her for quite a while and done extremely nicely out of them. The questions whether they underperform like they did after the first rate hike in two thousand and six, or whether they keep going. I think that
the BOJ hasn't finished this. I think there's a certain amount of contrition from the Bank of Japan that they have been waterboarding the economy for quite some time, and that's the speech of seven December, when they're saying, sorry, we crushed net interest income in the household sector, in the financial sector. Certainly didn't help in the corporate sector because they don't have debt anymore, and so they're essentially they were essentially saying, we messed up. We didn't expect
it to go on for as long as that. We knew that the longer we do it, the more it hurts the economy. And therefore they've been signaling for quite some time they'll get out on this. I think think there's possibly more to come.
Nick, we were sort of musing at the beginning of this week, you know, what would have the bigger impact on markets? Would it be the Bank of Japan call today? Would it be the Nvidia Developers conference or the FED? Given that you know, we got a lot telegraphed from from the BOJ, through the Nike and through Kyoto on what might happen today, I'm just curious whether you think maybe what your own pal says in the next twenty four hours could be the most important.
Yeah. I mean, obviously, in terms of the currency, this is a relatively small impact. In fact, it's sending the currency in the wrong direction. Rates have gone up, and yet the currency is weakened. What's going to be important for the currency is clearly going to be the FED, and that the cuts we've been expecting from the Fed. I think people are getting less and less confidence that they'll get the number and size of them that they'd
thought some while ago. That's why we're staying weak. I mean, the main thing with the end is it effects emotions. The effect on profits is nowhere close to what most people think it is.
Let's get back to Ed Rogers very quickly. For the last time, Ed and few had had take a guess at what the FED is going to do in terms of forecasting future rate cuts this year, are you in the seventy five basis point in terms of total cuts this year? Are you leaning more towards fifty My.
Guess that it would be lower than seventy five. If you're going to put a gun in my head and make me tick, you're going to be a bit more gradualist, because I think there's a lot more concern and uncertainty in that in that regard in the United States about what exactly impact will be.
Where to go, David, let me put this question to you then about the environment. We've had earnings and that has driven stock market gains in the US and people have set aside macro policy a little bit. Now you've got uh, the FED coming in in the next day, and we really are at the end of the earnings for this season. Did we start to fret a little bit more about rates and levels of inflation?
Well, let let's well, let's see what the dots look like first, right, and let's see what the thinking there said. And I think that's a very good point. Let me rephrase that. You know, markets have done well despite the fact that we pushed back in rate high expectations, right, yeah, and the fact that.
And that's because of earnings. Earnings have been pretty solid.
Yes, I think that the Nvidia story overnight just to crowbar that in the crowbar that in right. So the issue for Nvidia, if you had to pick one, that price for perfection was of a company that pretty much as a monopoly on you know, a very narrow set of very wealthy and large big buyers, and demand seems insatiable, right, And the question there was was that new trip blackwell, I think was what the chip was called. Does that then widen enough the customer base for Nvidia to justify
those the valuations. We put that question earlier on to one guest and he said, yeah, no problem, in Vidia.
Still buy Nvidia.
So yeah, to answer your question, you buy you. It's equity markets. If in Nvidia keeps doing what it does, as it represents, of course a narrow pool of other equities, well maybe that.
Well, my feeling was I was tempted to think that the equity market could move sideways to down here because the focus would be more on the FED and interest rates and inflation. That's a little stickier than what people had hoped for them, say a month ago, and that since you don't have earnings, you're not going to hear less about Nvidia and and AMD and some of these, and you know, the nervousness might come back in. You know, just some final thoughts from you before we wrap up.
Yeah, I'd say watch China right if if if one is up the view that global equities will do well, you sell one hand to buy the other. You know, India's done very well last year. A lot of fun flowers are selling India and slowly coming back into China. How long that lasts? Nobody knows, but it's I guess in some ways it's zero sum game, just looking at from that specific perspective.
Nick Smith very quickly, Japan's strategist at cs l C L s A, what's your strategy on putting money to work in Japan? Very quickly.
I think that what we're going to have from here on in is continued inflation with continued negative real rates, which means real estate companies could continue to do very well. We'll have a short period of out performance for the for the banks, but they're they're a trade dunekake falling
in love with them. They're not not quality. But mostly I'd be saying stick with the hair with high dividend Dealders, that's the only way of getting a real return in the country where bums are such big negative real returns.
So glad it worked out that you could join us, Nick, don't be a stranger. We'll have to have you on the Daybreak Asia radio program in the near future. Nicholas Smith, Japan strategist at CLSA, Ed Rogers as we wrap up final thoughts.
Ultimately, I think this is a good thing and this should be a positive signal for Japan getting back to a more normal ish interestrate environment and more normal you know tools if you will, or responses, maybe it's a better word on the part of the BOJ. Is ultimately a fine of health and this should be viewed as such. It's fairly robust. Japan looks pretty good right now and this is I think more signs that things are looking good for Japan and.
It's always a pleasure. Thank you so much for making the chime to join our special coverage of the bo j's policy decision ed Rogers CEO c IO at Rogers Investment Advisors as the BOJ hikes rates were the first time since two thousand and seven, the policy rate now in a range of zero to positive ten basis points. We've been at negative ten basis points, it seems like,
for quite some time, and that will do it. I'm thanking David Anglace from the TV side at Bloomberg Television and Brian Curtis, co host of Daybreak Asia in Hong Kong as well. This is Bloomberg