In a move that surprised no one, the BoJ left their monetary policy unchanged unhinged. The policy statement still reflects the looney tunes, magical thinking that has always epitomized their decisions: they’ll raise rates when inflation reaches 2% – even though inflation is well above 2% and has been for over a year. 
Annualizing the past quarter, CPI is running at 5.4%. Yet, the BoJ is holding short term rates at -0.10% and the 10Y at 0%. Ultra-low interest rates have exacerbated the inflation problem for consumers, as the yen continues to hover near 30+ year lows – driving food and energy prices even higher.
However, increasingly squeezed consumers remain at the bottom of the BoJ’s priority list, along with Debt:GDP – currently around 255%. At the top of the list: the Nikkei 225 stock index – hovering near all-time highs.
continued for members…
Markets have their own thoughts on where rates should be, with the 10Y recently pushing 1% before the BoJ bought the rate back down.
Can excessive dovishness do damage? Of course. We’ve seen it in the US over the past couple of years. But, the BoJ is much more focused on exporting Toyotas – made much more affordable in foreign markets thanks to the lower yen.
In the US, futures remain in meltup mode with SPX only 80 points below all-time highs.
The most pressing headlines for the US continue to be the situation in Ukraine and the Middle East – with oil and gas prices coming under pressure as tankers are now avoiding the Red Sea amid (Iran-backed) Houthi drone attacks. So far, the impact has been muted – most likely by central banks that are no doubt embedded in the 70% of volume driven by algos.
It hasn’t done much to boost interest rates – yet. 
The 10Y remains broken down with a trend line backtest and bounce off the SMA200 still being held at bay and the 2s10s breaking down.
It doesn’t appear to be an issue at the moment, as the year-end meltup seems very determined. USDJPY’s bounce off its SMA200 will help. If it continues up to our 149.14 target, it could continue to parse out feel-good vibes to equities through the first quarter.
The EURUSD is positioned to help – but only if it can break out of the white flag pattern. It’s taking another stab at it today.
The DXY is hanging in there…for now. But, another leg lower (lower interest rates would help) would be very supportive of stocks.
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