Bank of Japan’s Desire to Stay Nimble

Last Edited by: LPL Research

Last Updated: March 22, 2024

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Jeffrey Roach:

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial, with a quick update on what's happening in the global markets and the call to action for investors. First, forget the dots. Watch the dollar. The most likely next move for the Fed will be a cut in rates as the latest dot plot illustrates. The real debate is the chronology of those cuts. Despite the delay in the next action by the Fed, investors are still optimistic about holding equities. We expect some volatility in the near term, but equity markets could experience a positive catalyst as weaker labor costs allow the Fed to launch its next move. Investors should carefully track the U.S. dollar for leading indicator into investor sentiment during a time where most global markets, except in Japan, expect rates to fall throughout the year. Second, the call to be nimble. Speaking of Japan, the Bank of Japan delivered a change in policy with a carefully crafted statement to minimize any shocks as Governor Ueda kept a slightly dovish tone after the Central Bank hiked rates for the first time since 2007. Amid the change, one variable remains constant. The BOJ affirms if long term rates unexpectedly rise, and this is a quote, it will make nimble responses, unquote, with additional purchases of government bonds independent of the regularly scheduled monthly purchase. One key takeaway here is Japanese policy makers are likely nervous about the potential for rates to rise too far and too fast, and also the yen weakened after that news. And if the dovish tone stays, investors should know that a weaker yen generally provides a boost for Japanese exporters. Third, don't forget the home-building sector. Housing starts were on an uptrend even back in 2019, and despite some volatility induced from the pandemic and the fed's aggressive rate-hiking campaign, builders stayed fairly active in starting building projects even this year. Investors should know that demand for new homes remains fairly stable. Despite those high borrowing costs, markets have rewarded investors aware of the opportunities in housing-related sectors. Well, that's all for now, and if you want more insights on global market trends, follow us on social media and take care.

 

LPL’s Chief Economist, Dr. Jeffrey Roach, highlights market indicators in response to the BOJ’s desire to stay nimble and the Fed’s conundrum with the dot plot.

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