Bank of Japan Rates Now On A Knife’s Edge

Summary

Highlights

• Governor UA and BOJ's communication tactics are criticized for being misleading, leaving markets in a state of confusion. 🤨
• The perceived 50 basis point ceiling on BOJ rates has created market anxiety due to fears of a capped interest rate environment. 📊
• Frequent occurrence of leaks before BOJ meetings renders official announcements as non-events. 📅
• Critics argue that BOJ's reference to rising rice prices as a reason for monetary policy changes is bizarre and unexplained. 🍚
• BOJ's outlook statement, purportedly guiding future rates, often appears to be a strategic ambiguity tool rather than a commitment. 🌀

Key Takeaways

• The Bank of Japan's recent rate hike is largely uneventful due to prior leaks, though it touches on a perceived 50 basis point ceiling. 📉
• A lasting perception of a 50 basis point ceiling could severely impact the yen's value, leading to economic ramifications. 💸
• Governor UA's communication has been criticized for fostering uncertainty and divergence from actual policy actions. 🗣️
• Market participants rely heavily on media leaks, which influences expectations and market responses. 📡
• Rice prices were humorously cited as a factor for the rate hike, highlighting the unpredictability of BOJ's public communications. 🍚

Overview

Chapters

• 00:00 - 00:30: Intro and BOJ Rate Hike Overview This chapter introduces the topic of the Bank of Japan's monetary policy decision in January 2025. The Bank of Japan raised the front end rate by 25 basis points. However, this was largely anticipated by the market due to extensive media leaks, so the rate hike itself was not a surprise or major event. The chapter sets the stage for discussing the broader implications of this decision.
• 00:30 - 01:00: Significance of 50 Basis Points The chapter titled 'Significance of 50 Basis Points' discusses the current policy rate of the Bank of Japan (BJ), which is set at 50 basis points, or half a percent. The chapter highlights the significance of this rate due to a perception among many market participants, especially within the domestic markets community, that there is a sort of ceiling or cap at this 50 basis point level. This perception influences the behavior and expectations of market participants. The chapter suggests that by examining historical charts of the BJ policy rate, one can observe the trend or impact of this perceived cap.
• 01:00 - 01:30: Market Perception and Risks The chapter titled 'Market Perception and Risks' discusses the challenges faced by Governor UA and the Bank of Japan board members in addressing the market's perception that a 50 basis point ceiling exists. This perception is seen as a form of resistance that the bank needs to overcome. The chapter emphasizes the importance of acting against this perception as a key task for the bank. If the bank fails to manage this perception, there is a risk that markets might solidify their belief in the existence of a 50 basis point ceiling, potentially influencing market behaviors and decisions.
• 01:30 - 02:00: Differentiated Analysis on BOJ Rhetoric versus Actions The chapter titled 'Differentiated Analysis on BOJ Rhetoric versus Actions' delves into the monetary policy of the Bank of Japan (BOJ) over the past two decades, focusing on the potential implications of its strategies. It highlights concerns about the destruction of the yen if the BOJ's normalization attempts fail, referencing the recent hike to 50 basis points in January 2025 as possibly the last attempt. The discussion anticipates more details on this stance, including insights from the governor's conference.
• 02:00 - 02:30: Invitation for Deeper Analysis The chapter explores the recent conduct and rhetoric of the Bank of Japan. It discusses the disparity between their public statements and actual actions, suggesting that the global market community is being misled by the bank. The narrative critiques the tendency to overanalyze and believe the bank's statements, implying a recurring pattern of the bank not aligning its words with its deeds.
• 02:30 - 03:00: January 2025 BOJ Meeting Discussion In the January 2025 BOJ Meeting Discussion, the chapter delves into the perplexing adherence of financial media and sell-side institutions to forecasts based on BOJ speeches that offer little substantive guidance. The persistent use of football analogies highlights the repeated inaccuracies in predictions, yet institutions continue to adjust their BOJ rate path outlook based on these speeches. The chapter aims to explore the underlying reasons for this phenomenon and proposes to investigate a newly emerging mantra within this context.
• 03:00 - 03:30: Market Reactions to BOJ Actions The chapter focuses on analyzing and interpreting the market's responses to the Bank of Japan's policies, particularly their interest rate hikes. It emphasizes a differentiated perspective rather than following mainstream interpretations. It aims to dissect what BOJ's actions or lack thereof truly signify and how they align or contrast with market expectations. The chapter promises a unique exploration beyond conventional thinking and aims to reveal insights that challenge the usual narrative regarding BOJ's strategy and market dynamics.
• 03:30 - 04:00: Interpretation of BOJ's Rate Hike Decision The chapter discusses the implications of the Bank of Japan's decision to raise interest rates. It includes requests for viewers to like and subscribe to the channel for more in-depth commentary and analysis on global macro markets, particularly focusing on Asia and Japan. The speaker also promotes their Substack page for detailed content and thanks current subscribers for their support.
• 04:00 - 04:30: Press Conference and Market Focus The chapter 'Press Conference and Market Focus' discusses the importance of having a global perspective in market predictions, especially focusing on the year 2025. The speaker emphasizes the necessity for market participants to consider viewpoints from outside the US, including Asia, to avoid being 'completely lost.' The chapter also mentions the Bank of Japan's policy rate, which is set at 50 basis points, aligning with pre-leaked expectations, thus not surprising market stakeholders. The speaker encourages viewers to support their channel with likes and subscriptions.
• 04:30 - 05:00: BOJ's Rationale Behind Rate Hike The chapter explores the rationale behind the Bank of Japan's (BOJ) decision to hike interest rates during the January 2025 policy meeting. It focuses on the significant role played by Governor UA and his communication style, which is described as one of the poorest in modern central banking history. The transcript provides insights from a note shared prior to 'Bank of Japan Day', indicating that the meeting's proceedings would heavily depend on Governor UA's handling of the associated press conference.
• 05:00 - 05:30: Rice Prices Cited in Outlook Report The chapter discusses the accuracy of Japan's predictions concerning the Bank of Japan's policies under Governor Waa, emphasizing Japan's flawless track record in this area. It mentions a specific instance where a rate move was confirmed by Nikkei, involving a 25 basis point increase to a half percent on the policy rate. However, the chapter concludes that this move is already accounted for in the markets and suggests that the official Bank of Japan policy release announcement will not have a significant market impact.
• 05:30 - 06:00: Criticism of Market Interpretations The chapter discusses the potential outcomes of a Bank of Japan meeting, focusing on how different scenarios might impact the Yen. It suggests that a 'dovish' hike by the Bank of Japan would likely lead to a sell-off of the Yen, while a 'hawkish' hike could keep the Yen stable or slightly stronger. If the Bank of Japan chooses not to hike at all, which is considered unlikely, it would severely weaken the Yen. The chapter highlights the significance of a potential hike to 50 basis points, noting the market's perception of an existing ceiling at this level.
• 06:00 - 06:30: BOJ Hiking History and Market Impact The chapter discusses the historical context and market impact of the Bank of Japan's (BOJ) interest rate hikes. It mentions that past BOJ hiking cycles have struggled to increase above a certain level, likely 50 basis points or another unit, suggesting a ceiling effect in past instances. The narrative discusses the immediate-term price action in response to hikes, noting that a hawkish hike might not have much impact on the Yen, keeping it neutral, while a dovish hike could lead to significant weakness. The sensitivity of the market and its asymmetric response to either hawkish or dovish moves by the BOJ governor is emphasized.
• 06:30 - 07:00: Conclusion and Summary Critique This chapter critiques the Federal Reserve's potential strategies on interest rates, emphasizing the need for a hawkish stance to maintain market stability. If the Fed, particularly through its chair Jerome Powell, signals a pause or end to rate hikes, markets may react negatively, interpreting this as a lack of commitment to controlling inflation. The discussion highlights the importance of strategic communication from the Fed to manage market expectations and reinforce the possibility of future rate hikes, even if they may not occur.

Bank of Japan Rates Now On A Knife’s Edge Transcription

• 00:00 - 00:30 all right greetings friends Weston neore from across the spread in Tokyo we need to discuss the bank of Japan not just this rate hike from this January 2025 monetary policy meeting for which the bank of Japan lifted the front end rate by 25 basis points that in and of itself was yet again very heavily pre- leaked by the media such that it wasn't a market event okay so that's not really what's significant What's significant is the
• 00:30 - 01:00 level that the BJ policy rate is currently sitting at which is 50 basis points half a percent Okay the reason that that is significant is because of this perception that exists amongst a good portion of the markets Community particularly the domestic markets Community this perception of a 50 Bas Point boj ceiling or cap that exists out there with Market participants because if you look at a chart if you look at just the history of the BJ policy rate you'll see
• 01:00 - 01:30 that indeed there kind of is this like 50 basis point like resistance or ceiling um that they can't seem to break through and so therefore Governor UA and the bank of Japan board members they now have an additional task if not their current foremost task of having to dispel this perception that a 50 basis point ceiling exists because if they don't do that and if markets start to think that there really is a 50 basis point ceiling that the that b can't seem
• 01:30 - 02:00 to penetrate through for the past two decades then not only does that become a self-filling reality but that also means that the yen is going to be destroyed because what that essentially would mean is that this past January 2025 hike to 50 that means that that was the last one that was the last hike of this normalization attempt the bank of Japan has to take that into consideration and indeed they have been and we're going to discuss like the governor way up conference and all that
• 02:00 - 02:30 okay um but we're also going to just talk more broadly in terms of the bank Pan's conduct as of late and their rhetoric and how that reconciles or rather doesn't reconcile with their actual actions because basically the markets Community by and large is being completely fooled by the bank of Japan they're hanging on to every single word overread way too deep into what they say and what they say is is nonsense again and again it's the Lucy lift the
• 02:30 - 03:00 football analogy despite just getting proven wrong over and over again very confusing to me why people just keep hanging on to every word and by people I'm not just talking about Talking Heads I'm talking about first of all Financial media but I'm mostly also talking about like cell-side institutions actually changing their boj Outlook their rate path Outlook based on like speech or something a speech that that says nothing okay um and we're also going to dive into this like Mantra this new
• 03:00 - 03:30 religion that the bank of Japan has adopted if the Outlook is realized boj will continue to hike rates that thing okay what that really means is not what people think it means all right so as always this is going to be a differentiated take than the consensus for regurgitation um and focusing on things that have nothing to do with bank Japan actual policy actions or inactions not to mention the markets themselves so we're going to get into all that do me a
• 03:30 - 04:00 favor if you haven't already hit the like button on this and subscribed to this Channel please do so and if you want further in-depth commentary and Analysis not just on the bank of Japan but on global macro markets and how Asia and Japan specifically is impacting them and certainly has been then please go to my substack page please become a subscriber and you would be directly supporting my work and for those of you who are already subscribers thank you for making this all possible seriously
• 04:00 - 04:30 just wouldn't be possible without you and I do assure you that in 2025 this will be a year in which Market participants will once again be completely lost if they don't even have a basic perspective from outside the US looking in let alone from Asia okay whether they realize it or not link is in the description for the suback please support the Channel with a like and a subscribe as well so Bank of Japan policy rate is now at 50 basis points that Pike was in line again with pre- leaked expectations it was not a surprise at all as I said said in my
• 04:30 - 05:00 note on the day prior to Bank of Japan day okay this again this is on my subse as well the real substance of the January 2025 boj rate hike policy meeting would be resting entirely on Governor UA and his press conference okay and Governor UA is modern Central banking's worst Communicator objectively so here's what I said in my suback on the eve of the meeting when the Nik the communication arm of the Bank of
• 05:00 - 05:30 Japan who by the way has still has a perfect track record for every single one of Bank of Japan's policy actions and changes that were made under Governor waa okay then Nik essentially confirmed this rate move but what I said was that this 25 basis point hiked to half a percent on the policy rate that's well priced in the markets already so the official release itself okay not the Nik release the official actual BJ policy release announcement that is not really going to be a market mover by and
• 05:30 - 06:00 large the bank Japan meeting starts at 3:30 p.m. with the governor Eda press conference okay so Bank Japan has a dovish hike the Yen's gonna sell off if the bank Japan has a hawkish hike the Yen will be flat to maybe perhaps slightly stronger and if the bank Japan doesn't hike at all which would be insane Yen's going to just get crushed okay and again the hike to 50 is significant because of the perception of this 50 B bis Point ceiling that exists
• 06:00 - 06:30 with Market participants okay prior boj hiking Cycles have not been able to get above 50 so that's why my thinking was a hawkish hike would be more Yen neutral in kind of immediate term price action but on the other hand a dovish hike would be far more directionally weaker okay it's it's very asymmetric the downside is much more sensitive okay so if Governor UA isn't hawkish and I mean
• 06:30 - 07:00 like explicitly hawkish like more rate hikes are coming period okay if he's like wishy-washy at all about it then the end's gonna sell off because whether or not his hogish rhetoric ends up being the case or not wa has to at least pretend that the hiking cycle is not over and that there's optionality left on the table because again if he doesn't do that if he isn't hawkish if he doesn't if he doesn't convince markets that there actually is more room above 50 then that would mean that the January
• 07:00 - 07:30 hike that just occurred was the very last hike of this cycle and the yen is going to get crushed so that's why I saying that that's going to be the the kind of game plan now just because that's the game plan that doesn't mean that the worst Communicator in the history not the history of but in modern Central Banking is going to be able to pull it off all right and he kind of pulled it off I suppose but he really kind of didn't all right so before we actually get into what was said at the press conference and all that let's just take a look at markets specifically FX
• 07:30 - 08:00 on the Yen um for the day okay this is spot dollar Yen here's midday policy announcement of hike 25 base points um that the market was already expecting then we get also the latest quarterly Outlook report which had a significant upward Revision in CPI forecast by the bank of Japan board members more on that in a moment and then you have the governor AA press conference that starts at 3:30 p.m. and then this is the end of the press conference and at the end of the day if you look at
• 08:00 - 08:30 the full day of trading from Tokyo open till Us close what do we have we have dollar Yen flat on the day as I was saying in fact if you actually measure it from when the press conference questions start the Yen had actually weakened dollar Yen's up from there okay dollar Yen's moving to the upside and if you look even further you'll see that this was dollar driven look at the DX dxy just getting slam down okay this is
• 08:30 - 09:00 dollar weakness but if there is dollar weakness and you know Euro strength and you know GBP USD strength and all that kind of AUD USA all that if every other currency is strengthening against USD but USD JPY is up that means that the Yen was weakening and indeed if you take a look at Yen crosses they're all down significantly okay so Governor waa yeah I guess he kind of pulled it off but not really because you got a Yen weakening on a blg rate hike okay now let's take a
• 09:00 - 09:30 look at why they hiked or why they say they hiked okay and what the focus will be going forward so the focus by everybody and everyone at the press conference and everyone in Market is clearly when and how is the path of rate hikes going forward okay the entire press conference was basically about the path forward terminal rate and the Trump Administration or that whole sort of situation okay those were like really
• 09:30 - 10:00 just the two questions that went back and forth so the key points from the press conference policy rate 50 basis points it's the first time in like 17 years the CPI outlook for the bank of Japan okay core CPI fiscal year 20125 was significantly raised 2.4% okay more notably right now all measures of CPI across headline CPI core CPI core core CPI for the next three fiscal years all the across the board are now above 2%
• 10:00 - 10:30 above that 2% Target okay so this Outlook report that was released this was a very hawkish Outlook report and that was very much done on purpose because they are trying to dispel this notion of there is no 50 basis point by doing that okay Outlook reports in for the bank of Japan are more or less sort of tool that most resembles the fed or the fomc's dot plots okay like if they
• 10:30 - 11:00 are basically guiding for higher interest rates we get the same sort of idea of what the collective board members are thinking and of course they can change all the time and it's nonsense is just as the you know f1c um f1c dotplots are all those are are parallel to one another okay but that's how you should think about Outlook reports that come out every quarter a very hogish provision upwards for CPI from the Outlook report why did they hike rates because apparently wage hikes and prices consumer prices are expected to
• 11:00 - 11:30 increase and if the Outlook is realized then interest rates will continue to be raised as they keep saying ad noi they also talk about this start of the new US Administration under Donald Trump didn't destroy markets so far so they were cool with hiking now and then they talk about the neutral interest rate is still far away he says that there's still a lot of room left okay now as I said just
• 11:30 - 12:00 because the nck leaked this and by the way the nck like this whole n like the whole media leaking this thing that does say it says a lot about kind of the character of Governor UA and his Outsourcing of Market volatility to like the media um it says what he's like afraid of every single one of these policy changes has been done via the media it's not been done by him okay says a lot about him just because the N had leaked this already ridh high itself is pric in it doesn't mean that it's nonevent and Governor wa could certainly
• 12:00 - 12:30 it up from there okay and he almost did but by and large I think that the bank of Japan members at the end of the day they were probably high-fiving each other for not blowing up markets in either Direction all right but we're still sitting on this knife's Edge all right sorry about that had to switch rooms because apparently a a real band was coming in um they these people must be so confused as to what the hell it is that I'm doing here who is this guy just yelling about
• 12:30 - 13:00 green and red blinking tickers okay so why did the bank of Japan hike rates in this January 2025 meeting why now okay and here's the context of the why now part okay first of all there's that whole Mantra of if the Outlook is realized the bang of Japan will continue to high rates with also like the synonymous caveat of if markets are in turmoil B Japan's not going to hike
• 13:00 - 13:30 rates I went into the whole thing about this how that was one of the stupidest most like I don't misunderstood is not doesn't even begin to describe this outright stupid it's like read on any Central Bank ever okay uh how that comment that was said by Deputy Governor ucha like a few days after the bank Japan shock H rates in at the end of July and then Black Monday you know at the beginning of August and all that and then he come comes out and and he makes
• 13:30 - 14:00 a speech and he says that the bank Japan's not got a high rates during times of Market turmoil and the entire world everybody was like oh my God the bank of Japan is caved and they flip-flopped thre in the towel already you know they're only two hikes in and and that's why I had to come out and make that last video because I I I couldn't stand by and allow this nonsense to happen forget Bank of Japan forget deputy
• 14:00 - 14:30 there is no Central Bank that will hike rates during Market turmoil okay what he said is standard practice for everybody it is not a cave or anything I thought everybody knew okay and by the way when I say everybody I'm not talking to like the to most of you who are on the other side of the screen I'm talking about the kind of smaller minority of Market professionals watching this you should be ashamed and embarrassed if you were
• 14:30 - 15:00 like caught up in that whole thing did the bag Japan cave or not or whatever you kidding me okay but nonetheless the last time the hke rates was at this end of July shock rate hike and by the way when I say like a shock rate hike that too was pre-announced by Nik it just was done 12 hours beforehand okay but let's never question nik's perfect 100% track record
• 15:00 - 15:30 of pre-announcing every single move that the bank of Japan makes under under Governor OA every single one of them okay so July shock rate hike September nothing October nothing December nothing okay where markets in turmoil at that time no no and no the Nik actually had this face ripping recovery off of the early August massive sell-off lows up like plus 20% within what two weeks of that okay um there was no Market
• 15:30 - 16:00 turmoil and the Outlook seems to have been met certainly and I'll get into that in a moment okay so that kind of would set up for a December meeting but because the N didn't pre-announce a December meeting it wasn't really that priced in okay but therefore everyone was kind of pricing in at that time before the December Bank of Japan meeting I think it was about 60 or 70% priced in for a January rate hike and if
• 16:00 - 16:30 not that by March rate hike okay and at that December press conference for a no change policy in December Governor UA for God knows what reason said that he needs to see one more Notch okay and talking in terms of progress with wage hike negotiations and all that he needs one more Notch of consider of of confirmation before moving forward
• 16:30 - 17:00 essentially what he did was he took January off the table as well at the December meeting and when he did that dollar Yen took another massive leg upwards as you can see here okay by the way this is also following fomc rate cut by 50 a few hours earlier for which as you can see the dollar Rose via dxy but then when UA made that stupid comment you could see that this was a very much a yen move higher okay because
• 17:00 - 17:30 he took January off the table one more Notch okay so January's off the table but then we get a rate hike in January so what was the one more Notch oua Sun okay you said in December you took January off the table in December you needed one more Notch what happened between the December one more Notch needing and January that's now not only back on the table but you actually hyp
• 17:30 - 18:00 what are the reasons well here are the reasons that he gave there is a worker shortage apparently in Japan okay well that didn't happen between December and January so that's nonsense he also said that the wage negotiations are proceeding okay and that there's been some like kind of some data that had been trickling in and by that the reason that one's uh particularly hilarious category of
• 18:00 - 18:30 is because Deputy Governor the other Deputy Governor heo apparently at holiday parties talking to corporates and all that he was collecting you know color from the corporate sector and they were all saying yes we're going to be hiking rates and so or or uh increasing wages and so I guess that seeped into actual monetary policy okay so we're not talking about data anymore we're talking about like holiday party chatter with
• 18:30 - 19:00 eggnog all right so worker shortage nothing new wage negotiations are proceeding nothing new okay so nothing changed basically between the December need one more Notch and taking January off the table and then putting J back on the table one could point to the Trump presidency start the inauguration right but that's also not the case for many reasons first of all Donald Trump won
• 19:00 - 19:30 the election in November with a republican majority in the house and the Senate okay that was known in December so nothing changed between December and January other than the inauguration itself which happened like a few days prior to which they cited but if that's your reason for taking January off the table at the December policy meeting okay you wouldn't phrase it or refer to Trump's election in the coming inauguration as need one more Notch okay
• 19:30 - 20:00 like what he he was talking about he needs more data confirmation so it's not that either okay so then what the hell was it what changed between the December stance of taking a high golf the table in January to hiking in January was there anything that changed well in reality no okay but what they're saying of because they have to come up with something right and this is just
• 20:00 - 20:30 you can't make this up yeah something changed if you look at the bank of Japan's quarterly Outlook report that was released alongside this January policy raid hike what changed was rice rice prices as in the food seriously rice prices if you think I'm kidding take look at the Outlook report yourself
• 20:30 - 21:00 they cite rice prices four times okay at furthermore they cite rise prices like in the same sentence and the same sort of you know gravity and waiting as rising wages government subsidies are going away even the weak Yen increasing import costs and rice prices like as if they're all the same kind of gravity now what's really hilarious about that that is cuz that's that's obviously like nonsense right
• 21:00 - 21:30 but fine if the bank Japan wants to just like I get it they have to make up something right everyone knows have to make up something I would like to know how many of the so-called economists and boj Watchers out there cited rice prices for a January hike okay because if you didn't if you called for a rate hike in January prior to n leaking this and you citing all these other things and but you didn't say rice
• 21:30 - 22:00 prices you are right for the wrong reasons and therefore you are wrong okay and this goes back to my brother point about nobody knows what the they're talking about when it comes to the bank of Japan including the bank of Japan okay rice prices this is a rice price rate hike okay like you can't I can't make the up okay it's hilarious too like an Asian Central Bank raising rate the bank Japan raising rates Bank Japan keeping rates on the floor since 2008
• 22:00 - 22:30 and fighting everything fighting all these other central banks ripping their rates Higher by like 500 basis points staying firm having the Yen get crushed all that kind of thing the overbed government there's the mortgage situation but if rice prices go up rip those rates higher okay now look first of all rice prices actually have been going up okay um but the and I I had had to look into this too and it
• 22:30 - 23:00 is like that rabbit hole is just a very kind of hilarious entertaining too yeah there's a rice rice prices have basically been they're are like record highs okay they're up something like something like 40 or 60% year-over-year for like the December figures and it's due to you know a shortage right you have like a Confluence of factors but one of those factors is just basically supply and demand because foreigners all of you foreigners who are coming to Japan because of the weekend you're basically eating up all of the rice so that the government has to um dip into
• 23:00 - 23:30 its rice reserves okay so funny because it's like when you think I when I hear of like dipping into reserves I think of Foreign Exchange reserves for interventions or like Joe Biden's oil reserves that strategic you know election Reserve whatever thing Japan had tap into his rice reserves okay that's how dire the situation is and the bank of Japan had to hike rates because of rice okay anyway it's not because of rice okay that's just the reason that they gave what it is is stop listening to the bank
• 23:30 - 24:00 of Japan stop thinking that they have some formulas stop like you know following some sort of this is happening in the macroeconomy and therefore the Central Bank response must be this and this and this and this in December one more Notch nobody made that call okay but fine one more Notch January is taken off the table but then January is put back on the table why right prices where where are you at sside research with your call for for
• 24:00 - 24:30 any of that none of you were able to forecast that okay because this is the level of nonsense that the bank Japan is like putting out there okay so why do they do it who the knows okay I at least very openly honest and saying like I have no idea I had no idea before I have no idea currently I can make guesses but I don't have any idea okay people who currently still think they they have an idea you know that they are full of okay so here is the deal
• 24:30 - 25:00 with this whole like religion that they've adopted if the Outlook is realize then the bank of Japan will hike rates okay well let's just see how true that is uh oh by the way just real quick before I forget regarding the carry trade because I got a lot of questions on this carry trade is not a not like a thing right now it's not like an issue and it probably won't be for some time the reason why is because the bank of Japan hiking rates of 50 another reason that that 50 level is significant is
• 25:00 - 25:30 because the Swiss National Bank the SNB has has been aggressively cutting rates okay so they cut rates down to 50 BJ just hike rates at 50 that means that the bank Japan and the SNB both have they both have their policy rates at the same level okay the like the Swiss frank this like CHF that was kind of a competing currency for the borrow leg the short leg of the JPY carry trade or the CHF car trade right it was low yielding currency the the Swiss National
• 25:30 - 26:00 Bank actually had um their rates even further negative than the boj did but then they ripped them way higher at the time before like y intervention all that Swiss National Bank kind of lost the public trust because for like carry trading because they caused a insane amount of volatility in I think it was January of 2015 when they out of nowhere allowed for the cap versus the Euro to just be like abandoned and then you saw like a 30% rip higher in CHF because of that market participants like I were a
• 26:00 - 26:30 little bit scarred from like you know shorting CHF but now with the interventions and all that and the directional move right blj's hiking rates snb's cutting rates CHF is basically going to like grab market share away from the what was otherwise like a monopoly of the only major currency that had extremely low on the floor rates okay but that's not the case and so therefore I don't think that you're going to get the same amount of the same level of
• 26:30 - 27:00 onesided no other option carry trade Pile in into JPY okay so there's that okay so now if the Outlook is realized then the bank Japan is going to hike rates right okay so let's take a look so this is October of 20124 this was the quarterly Outlook the last one before this current one that was just released and as you can see they have the policy rate at 1.9% okay now where was Japan core CPI Japan cor CPI has been well over not
• 27:00 - 27:30 just 1.9% but well over the 2% Target that they set during the corona days so it seems to me that the Outlook has been met okay now this latest one however this latest one what do they do they actually really ripped those revisions higher okay CU now we're looking at core CPI for fiscal year 2025 to be at 2.4% now here's the significance with that what that is that like massive increase
• 27:30 - 28:00 surprise people that's part of the hawkish rhetoric to dispel the 50 basis point ceiling thing okay because they probably figured that Governor W is going to it up somehow okay either way if they high R the 50 basis points at that 50 basis point level they have to also follow it up with some other actual like written in policy sort of Ence for further rate hikes coming okay
• 28:00 - 28:30 and so that's why I think that they held off until they were able to release it alongside the quarterly report okay that's why they did it in January the way that he kicked it down the kicked the can down the road was incredibly stupid because Governor Wade is just not good at this this game but I think that's why they were they were just kind of trying to kick the can down the road can down the road and they basically were able to release this very fake hawkish because of rice prices whatever outlook for fiscal year 2025 to have uh to handle across the board for every
• 28:30 - 29:00 single CPI metric that they released okay now here's the thing about this whole if the Outlook is met we're going to raise rates thing okay this is actually not like a hawkish thing okay I talked about this in my substack I've been talking about this for a while now this is what that means so the problem the irony of using this Mantra okay is that it actually it works antithetically right so just to use an example if the bank of Japan if they were to have absolutely no
• 29:00 - 29:30 intention or desire to hike ever hike rates right then under this whole if the Outlook is met we will hike rates thing the boj would just set its outlook for inflation at some ridiculously high unrealistically high level like core CPI at like 50% or something for like current fiscal year right and then when CPI figures come in in not at you know 50% come in at like single digits and nowhere near this impossible new
• 29:30 - 30:00 forecast the boj can continue to keep rates unchanged and policy comoda okay because it's justified by the Outlook isn't met yet okay and at the same time the bank of Japan is projecting like you know 30% inflation rate or whatever like turkey type of thing said yeah of course they should be tearing the roof off of rates and Blasting them to the Moon okay but other words like the higher the Outlook that they make up like they just did the less likely it is to be met
• 30:00 - 30:30 therefore okay and therefore the stronger the policy rate will be enforced to be on hold rather than increased according to their own projections okay that's why it's an antithetical discipline okay and look all that aside just just to be frank right they have been above that 2% CPI realized for two years plus running okay so while it might seem like a framework for the bank of Japan policy on the
• 30:30 - 31:00 surface this whole out look is med we're going to hike rates it's a very deceptive phrase okay the boj is using it fluidly to mean whatever the hell they want at any given time it's meaningless okay just because it's repeated all the time it doesn't mean all right so that's the alternative take that you'll never hear from anyone else so stop listening to the bank of Japan and stop listening to others who think that they know what the bank of Japan is about to do because the bank of Japan themselves even know what to do okay finally something who called the
• 31:00 - 31:30 rice price thing and the one more Notch thing and I will gladly talk to that person and I'll interview them on this program otherwise until then we'll see you next time thank you bye [Music]