19 Mar 2024
On 19 March, the Bank of Japan (BoJ) declared that its price stability goal is in sight. It announced an overhaul to its monetary policy framework that was pretty much in line with what was discussed recently in local media (e.g., Nikkei, 16 March 2024). Basically, the various acronyms – QQE (Quantitative and Qualitative Monetary Easing), YCC (Yield Curve Control), and NIRP (Negative Interest Rate Policy) – are no longer relevant.
The BoJ will now target the policy rate (i.e., uncollateralised overnight call rate) at 0-0.1% (up a fraction from -0.1% to 0%), by remunerating a +0.1% interest rate on excess reserves. It will cease asset purchases (ending the purchase of exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITs)), other than Japanese government bonds (JGBs) – which will still run at about JPY6trn per month for now – although we note that the outstanding amount of JGBs on its balance sheet has already stopped growing in January-February, because of bond maturities. The rate hike went through in a 7-2 majority vote in the nine-member BoJ board, while the vote on JGB purchases was 8-1. The decision on other asset purchases was unanimous.
The JPY weakened with the announcement. USD-JPY remained above the 150 level. Some may say this is a classic ‘buy the rumour, sell the fact’ – which was also what happened the last time the BoJ raised rates in 2006-07. But there was not much buying in the first place. USD-JPY only fell by c2.5% between 1 March and 11 March and then started rebounding after US CPI on 12 March, which showed that inflation in the US has remained sticky (Bloomberg, 18 March 2024). The hawkish repricing of the US Federal Reserve (Fed) is overshadowing the BoJ. In our view, this is not entirely justified. The BoJ acted decisively at the March meeting. According to Bloomberg’s survey of BoJ watchers published on 12 March, 58% expected no policy change at this meeting. And even when policy change happens, 30% still thought it would happen in sequence.
There are also important differences from the 2006-07 cycle this time round: (1) higher wage growth and more sustainable inflation; (2) a more undervalued JPY prompting Japan’s Ministry of Finance (MoF) vigilance, leading to an improvement in Japan’s balance of payments (BoP) via a contraction in imports and boost in services exports; and (3) a likely shorter waiting time to the Fed’s rate cuts (back then, the Fed only started cutting 14 months after the first BoJ hike).
Beyond the near-term reaction, the JPY is likely to recover in 2024, after depreciating more than 25% over the past three years, in our view. The US-Japan yield differential is set to narrow this year, in addition to an improvement in Japan’s balance of payments, among other factors, should provide support for the JPY.
Important disclosures
This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Information in this document is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on it, consider the appropriateness of the information, having regard to their objectives, financial situation and needs. If necessary, seek professional investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products.
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value.
that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered in HSBC Research on a principal or agency basis.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
Additional disclosures
1. This report is dated as at 19 March 2024.
2. All market data included in this report are dated as at close 18 March 2024, unless a different date and/or a specific time of day is indicated in the report.
3. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
4. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.
This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice.
HBAP is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document. HBAP gives no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document.
This document is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You SHOULD NOT use or rely on this document in making any investment decision or decision to buy or sell currency. HBAP is not responsible for such use or reliance by you. You SHOULD consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document.
You SHOULD NOT reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to the US, Canada or Australia or any other jurisdiction where its distribution is unlawful.
Jersey
HSBC Expat, a division of HSBC Bank plc, Jersey Branch, has distributed this document to its customers for general reference only. HSBC Expat is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. We give no guarantee as to the accuracy, timeliness or completeness of this document. HSBC Expat will distribute this document to customers, at their request, where we can lawfully do so.
Mainland China
In mainland China, this document is distributed by HSBC Bank (China) Company Limited (“HBCN”) to its customers for general reference only. This document is not, and is not intended to be, for the purpose of providing securities and futures investment advisory services or financial information services, or promoting or selling any wealth management product. This document provides all content and information solely on an "as-is/as-available" basis. HBCN is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document. You SHOULD consult your own professional adviser if you have any questions regarding this document.
Hong Kong
In Hong Kong, this document is distributed by HBAP to its customers for general reference only. HBAP is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. HBAP gives no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document.
Malaysia
In Malaysia, this document has been prepared by HBAP is issued and distributed by HSBC Bank Malaysia Berhad (127776-V) / HSBC Amanah Malaysia Berhad (807705-X) (the "Bank"). The Bank is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result, of arising from or relating to your use of or reliance on this document.
Singapore
In Singapore, this document is distributed by HSBC Bank (Singapore) Limited (“HBSP”) pursuant to Regulation 32C of the Financial Advisers Regulations, to its customers for general reference only. HBSP accepts legal responsibility for the contents of this document, and may be contacted in respect of any matters arising from, or in connection with, this document. Please refer to HBSP’s website at www.hsbc.com.sg for its contact details.
Taiwan
In Taiwan, this document is distributed by HSBC Bank (Taiwan) Limited, [13F/14F No 333, section 1 Keelong Rd, Taipei] to its customers for general reference only. HSBC Bank (Taiwan) Limited is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. Clients of HSBC Bank (Taiwan) Limited should contact their relationship manager in respect of any matters arising from or in connection with this document.
United Arab Emirates
In the UAE, this document is distributed by HSBC Bank Middle East Limited (“HBME”) U.A.E Branch, P.O.Box 66, Dubai, U.A.E, wh ich is regulated by the Central Bank of the U.A.E and lead regulated by the Dubai Financial Services Authority. HBME is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this document.
Miscellaneous
Notwithstanding this document is not investment advice, please be aware of the following for the sake of completeness. Past performance is not an indication of future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. When an investment is denominated in a currency other than the local currency of an investor, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. Where there is no recognised market for an investment, it may be difficult for an investor to sell the investment or to obtain reliable information about its value or the extent of the risk associated with it.
This document contains forward-looking statements which are, by their nature, subject to significant risks and uncertainties. Such statements are projections, do not represent any one investment and are used for illustration purpose only. Customers are reminded that there can be no assurance that economic conditions described herein will remain in the future. Actual results may differ materially from the forecasts/estimates. No assurance is given that those expectations reflected in those forward-looking statements will prove to have been correct or come to fruition, and you are cautioned not to place undue reliance on such statements. No obligation is undertaken to publicly update or revise any forward-looking statements contained in this document or any other related document whether as a result of new information, future events or otherwise.
The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates and their respective officers and/or employees, may have interests in any products referred to in this document by acting in various roles including as distributor, holder of principal positions, adviser or lender. The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and employees, may receive fees, brokerage or commissions for acting in those capacities. In addition, The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and/or employees, may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in this document.
© Copyright 2024. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED. No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.
