Bank of Japan Stuns Markets with Yield Curve Control Policy Change
Market Summary
In US, some economic data released last week added to concerns about future rate hikes. The economic growth of the third quarter estimated by the Commerce Department was upped from 2.9% to 3.2%. Partly in response to actions by the Bank of Japan, long-term yield increased and treasury rates climbed. EU showed signs of slowing inflation and an improvement of consumer confidence. Germany, France and Spain saw marked fall in annualized producer prices. German factory-gate prices rose 28.2% year over year. In the third quarter, UK economy contracted worse than earlier estimates. Growth in GDP in the third quarter was revised lower to 0.3% while business investment shrank 2.5%.
In Asia, the Bank of Japan surprisingly modified the yield curve control (YCC) policy, allowing 10-year Japanese government bond yields to move up and down 0.5% around the 0% target, doubling its prior implicit cap of 0.25%. China’s growth outlook faced challenges from a spike in coronavirus cases. The World Bank cut its forecast for China economic growth for 2022 and 2023. The forecast for this year is 2.7%, and next year’s is 4.3%. China’s broad budget deficit was CNY 7.75 trillion from the start of the year, the lowest recorded number, more than double that of 2021.
Major News
Japan’s core consumer price index rose 3.7% in November from a year earlier, exceeding the Bank of Japan’s 2% target for the eighth consecutive month. The core inflation rose at its fastest pace in nearly 41 years.
Nearly 250mn in China may have been infected with Covid-19 in the first 20 days of December, following the rapid dismantling of its zero-Covid policy, according to China’s health authority.
The Bank of Japan kept the yield curve control targets at -0.1% for short-term interest rates and around 0 for the 10-year bond yield, and allowed the 10-year bond yield to rise as high as 0.5%. But they denied the move was a withdrawal of stimulus.
The UN COP15 biodiversity summit has reached an agreement to protect more of the planet’s lands and oceans by 2030, which complemented the Paris Agreement for climate.
What Caught Our Attention
Based on an analysis of 6.5mn stories on 32 news topics compiled by Chartbeat, Ukraine war account for 278mn hours of the 1bn hours audiences spent reading them, which is similar to Covid’s share in 2021.
American political topics also capture reader’s attention. The midterm elections accounted for 145mn hours and Joe Biden 137mn hours. Surprisingly, the former president, Donald Trump’s reading hours matches that of British political turmoil.
Last year’s leading subject, pandemic was replaced by the Ukraine war. Although the death toll of covid in 2022 is probably similar to that in 2020, Russia’s invasion became the biggest story.
Source: Kredens Capital, Bloomberg, Financial Times, Economist
