The Bank of Japan in a major review of its monetary policy which has been a complete failure in achieving what it set out to do, raise the rate of change of inflation, as nonsensical as that is, made some tweaks today. They did after all increase the tolerated trading band of the 10 yr yield around zero to 25 bps from 20 bps. They also said they would no longer give an exact, explicit yen amount of the annual purchases of ETF’s which means they will only buy when stocks fall notably and will buy the broader Topix instead of the Nikkei. The Kuroda put you can say. Governor Kuroda said “We won’t tolerate yield fluctuations that would have an impact on our monetary easing. We absolutely need to make sure the effect of our monetary easing isn’t hurt. We clarified that stance with our new guidance.”
Call these changes modest and they are not a surprise but understand that this is the 1st admittance on the part of the BoJ that their policy has gone too far. There was a small response in JGB’s as the 10 yr yield was flat, the 20 yr was higher by 1.6 bps while the 40 yr was higher by 1 bp. The Nikkei fell with all Asian markets following the US weakness but the Topix bank stock index rallied 2.2% after the 3.6% jump yesterday when chatter built about the band widening. Japanese bank stocks (I like the largest ones) are a buy with this index still down 89% in nominal terms from its peak in 1989.
TOPIX BANK STOCK INDEX
Japan’s February CPI was also out and taking out food and energy prices were higher by .2% y/o/y as expected vs .1% in January. These are still of course modest gains but what it truly should be called is price stability. Lower energy prices saw the headline figure fall but that is about to change. Inflation breakevens have risen in Japan too but still only at .20%, although that is just off the highest level since June 2019.
JAPAN’S 10 yr INFLATION BREAKEVEN
I mentioned yesterday the central bank of Brazil that hiked rates by 75 bps and Turkey by 200 bps. I forgot to mention that the Central Bank of Norway also set the stage for rate hikes. Norges Bank Governor Olsen said he expects that in about 2-3 years interest rates will be back to “normal” which means that the 1st hikes are coming in the “latter half” of 2021 he said. This as opposed to the Fed that won’t start hiking until AFTER 3 years. The Norges Bank also said importantly and honestly, “A long period of low interest rates increases the risk of a build-up of financial imbalances.”
Germany said its February PPI jumped 1.9% y/o/y from .9% in January but that was about as forecasted. Easy comps are to come which will lead to faster gains.