Wednesday’s Other Central Bank Meeting Might Be the One to Watch
The Bank of Japan will announce an interest-rate decision on the same day as the Fed, with big consequences
The Bank of Japan will announce an interest-rate decision on the same day as the Fed, with big consequences
All eyes will rightly be on the Federal Reserve’s interest-rate decision Wednesday. But the meeting of another central bank across the Pacific will be quite consequential too.
While Jerome Powell is pondering whether to cut rates now for the first time in more than four years or perhaps wait a couple more months, Kazuo Ueda , his counterpart in Japan, is considering whether to do the opposite . After the Bank of Japan exited its negative-interest-rate regime in March, investors are looking for more tightening to come.
The Bank of Japan raised its short-term interest rate from minus 0.1% to a range of around 0% to 0.1% in March, the first increase in 17 years. Japan’s consumer prices rose 2.8% year-on-year in June, which was off from inflation’s peak pace last year, but still well higher than Japan is accustomed to.
In a possible preview of what awaits markets if the Bank of Japan leans hawkish, the Japanese yen has risen sharply in the past few weeks, appreciating 5.2% against the dollar this month from a multi-decade low. That has likely contributed to market turmoil in other markets around the world over the past couple of weeks, including the selloff in global technology stocks, as the yen, with its low interest rates, is a favourite funding currency for traders .
Hedge funds have ramped up their short bets on the yen in the past two years but could exit their positions pretty abruptly. Leveraged funds have slashed their net short position in options and futures against the yen by half in the two weeks ended July 23, according to data from Commodity Futures Trading Commission via CEIC. That is equal to a nominal value of $4.6 billion.
But the market is divided over whether a Japanese rate increase could come as soon as this week. There is a 41% probability that the Bank of Japan could raise rates by 0.15 percentage point, inferred from pricing of overnight indexed swaps, according to Bank of America.
At the meeting this Wednesday, the Bank of Japan is also expected to outline plans to unwind its portfolio of $3.8 trillion in Japanese government bonds, likely giving a further boost to long-term rates. Japan’s 10-year government bond yields have gone up 0.44 percentage point to around 1.06% this year as investors expected higher rates.
The country was swimming against the tide over the past few years by staying put on its ultra-easy monetary policies when most major central banks were raising rates. The Bank of Japan will likely be more cautious going in the opposite direction: A sharply higher yen could be punishing to exporters , and policymakers in Japan live in perpetual fear of returning to deflation. Any surprises in the BOJ’s pace as it normalises policy could still rattle financial markets.
Over the longer term, a narrowing interest-rate differential between the U.S. and Japan could shift the pattern of investment flows. Japan had the equivalent of $4 trillion in foreign portfolio investments at the end of 2023, according to official data. That includes both companies and individuals which are scouring the globe for higher returns. Some of them might bring their money back to Japan if assets at home are generating higher yields, especially if the yen is getting stronger.
U.S. 10-year government bonds still yield around 3.1 percentage points more than Japanese ones, but that is already down from a 4.2-percentage-point gap in October. If that gap keeps narrowing, it could mean tighter financing conditions in markets around the world, which have long looked to Japan as a steady buyer.
It is rare for two of the world’s largest central banks to be at major turning points in their long-term policy settings at the same time, and rarer still for them to be moving in opposite directions. The consequences could be far-ranging and unpredictable. Investors around the world will have to get used to paying more attention to what is happening in Tokyo, not just Washington, D.C.
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“Only with competition can we become stronger and allow the industry to remain healthy,” Ma said
Alibaba Group co-founder Jack Ma said competition will make the company stronger and the e-commerce giant needs to trust in the power of market forces and innovation, according to an internal memo to commemorate the company’s 25th anniversary.
“Many of Alibaba’s business face challenges and the possibility of being surpassed, but that’s to be expected as no single company can stay at the top forever in any industry,” Ma said in a letter sent to employees late Tuesday, seen by The Wall Street Journal.
Once a darling of Wall Street and the dominant player in China’s e-commerce industry, the tech giant’s growth has slowed amid a weakening Chinese economy and subdued consumer sentiment. Intensifying competition from homegrown upstarts such as PDD Holdings ’ Pinduoduo e-commerce platform and ByteDance’s short-video app Douyin has also pressured Alibaba’s growth momentum.
“Only with competition can we become stronger and allow the industry to remain healthy,” Ma said.
The letter came after Alibaba recently completed a three-year regulatory process in China.
Chinese regulators said in late August that they have completed their monitoring and evaluation of Alibaba after the company was penalized over monopolistic practices in 2021. Over the past three years, the company has been required to submit self-evaluation compliance reports to market regulators.
Ma reiterated Alibaba’s ambition of being a company that can last 102 years. He urged Alibaba’s employees to not flounder in the midst of challenges and competition.
“The reason we’re Alibaba is because we have idealistic beliefs, we trust the future, believe in the market. We believe that only a company that can create real value for society can keep operating for 102 years,” he said.
Ma himself has kept a low profile since late 2020 when financial affiliate Ant Group called off initial public offerings in Hong Kong and Shanghai that had been on track to raise more than $34 billion.
In a separate internal letter in April, he praised Alibaba’s leadership and its restructuring efforts after the company split the group into six independently run companies.
Alibaba recently completed the conversion of its Hong Kong secondary listing into a primary listing, and on Tuesday was added to a scheme allowing investors in mainland China to trade Hong Kong-listed shares.
Alibaba shares fell 1.2% to 80.60 Hong Kong dollars, or equivalent of US$10.34, by midday Wednesday, after rising 4.2% on Tuesday following the Stock Connect inclusion. The company’s shares are up 6.9% so far this year.
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