BOJ Shocks With Hints Of Imminent Rate Hike, Traditionally A Signal Of Imminent Financial Crisis

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by Tyler Durden
Thursday, Dec 07, 2023 - 02:29 PM

After a brutal drop in interest rates across the globe in November, driven by expectations of imminent rate cuts by heretofore hawkish central banks, markets have seen a sharp reversal in tone in the past 12 hours, with bond yields seeing a significant increase overnight and equities losing ground, despite a major bond rally taking place yesterday. The main catalyst for this have been comments from Bank of Japan officials, which have suddenly seen investors ramp up the chances that the BoJ could bring an end to their negative interest rate policy, with markets pricing in nearly 50% odds of a December hike.

Why the sudden change? Well, yesterday we saw Deputy Governor Himono discuss the impact of negative rates, pointing out that households could benefit from higher net interest income if rates were positive (which, of course, is a "brilliant" conclusion: if interest rates are positive one may actually earn interest instead of paying it, thank you BOJ). He also added that “there would be a sufficient possibility of achieving a positive outcome from the exit, since a wide range of households and firms would benefit from the virtuous cycle between wages and prices”. So some fairly positive remarks about what could happen in such a scenario.

Then this morning, we’ve BoJ Governor Ueda himself, who added to that speculation by saying that policy management would “become even more challenging from the year-end and heading into next year”.