BOJ Caps a Week of Central Bank Pauses

Rates retreat to end busy week. Swap rates and UST yields backtracked from the week’s highs, a 3-6bp reversal from the strong post-FOMC sell-off. The move came despite hawkish Fed commentary, as Fed members Daly and Bowman said that at least one more rate hike is possible. Bowman seemingly favors multiple hikes, as she stressed, “I see a continued risk that energy prices could rise further and reverse some of the progress we have seen on inflation in recent months.” The 2 and 10-year UST yields closed at 5.11% and 4.43%, gains of 8bps and 10bps on the week, respectively.

Global central bank recap: a pause to hikes. The Fed’s rate decision was the highlight during a busy week, where it confirmed market expectations of a rate pause and reinforced its soft-landing goal. The Fed wasn’t the only one, with the Bank of England, Bank of Japan, and European Central Bank all choosing to pause rate hikes, albeit for different reasons. Elevated recession risks drove pauses in Europe and England, while Japan further embraced their negative rates policy in search of stable inflation and wages.

Japan’s continuation of negative rates comes with a twist. The BOJ held its short-term rates at -0.1% and 10-year JGB yield ceiling at 1.0% today, which came as no surprise to markets. Governor Ueda also downplayed an imminent lift in policy rates, adding, “because we aren’t in a state where inflation accompanied by wage growth – sustainable and stable inflation – is in sight, we’re patiently continuing with monetary easing under the current framework.” Ueda’s dovish presser reasserted pressure on the yen, which weakened to nearly a 10-month low against the dollar.