Puris: The Bank of Japan may further adjust its monetary policy at a very slow pace
Paulson Multi-Asset Income Bond Strategy Deputy Fund Manager Zhong Xiaoyang stated that recent market volatility may lead to a slow adjustment in the pace of monetary policy by the Bank of Japan, reducing the likelihood of a rise in global sovereign bond yields. The policy directions of the Federal Reserve and other central banks have fueled expectations of interest rate cuts in the market. Concerns about economic growth have triggered closing trades, but credit valuations have improved, and credit spreads may bring more opportunities. The Bank of Japan may slow down its interest rate hike pace, and the appreciation of the yen may bring downward pressure on inflation
According to the Zhitong Finance and Economics APP, Zhong Xiaoyang, the deputy fund manager of the PuLaiShi Multi-Income Bond Strategy, stated that given the recent market volatility, the Bank of Japan may further adjust its monetary policy at a very slow pace. This means that the likelihood of global sovereign bond yields rising due to changes in Bank of Japan policies is low, and trends in employment and inflation will become more critical influencing factors.
Zhong Xiaoyang pointed out that the Federal Reserve, as expected by the market, maintained interest rates in July, but hinted at a possible rate cut in September. The potential policy directions of the Federal Reserve and other G10 central banks (such as the Bank of England and the European Central Bank) are driving up market expectations of rate cuts.
He continued to say that the market's main concerns have shifted from inflation levels to economic growth. The market previously overestimated the possibility of an economic "soft landing" and has now significantly raised expectations of an economic recession, similar to the situation in January this year. However, as the market expects the Federal Reserve to cut interest rates several times, PuLaiShi believes that the United States may ultimately avoid a recession. PuLaiShi observed that concerns about economic growth in the market have triggered a large number of closing trades, but at the same time, credit valuations have improved, and credit spreads may reflect more opportunities.
Zhong Xiaoyang stated that due to the recent appreciation of the yen suppressing future inflation expectations, the market did not fully reflect the Bank of Japan's potential 15 basis point rate hike. This rate hike by the Bank of Japan may be the first step towards a future 25 basis point rate hike. The recent upward trend of the yen has recovered the depreciation since June (relative to U.S. Treasury bonds).
PuLaiShi expects that external factors such as interest rate differentials will be the main factors affecting the future trend of the yen, rather than special factors such as foreign exchange intervention, especially in the current situation of a large-scale reduction in yen short positions amid a yen arbitrage unwinding trend. If the yen continues to appreciate from its current level, it will further bring downward pressure on inflation, slowing down the Bank of Japan's pace of raising interest rates to a neutral level