As the Fed began to hawkish, Asia's two largest central banks had to deal with the impact of the Fed's shift.
Today, despite the slowdown in the domestic economy due to the impact of the epidemic, the central bank's lending rate has remained stable. As the People's Bank of China eases monetary policy and the Federal Reserve tightens monetary policy, investors sell bonds at record rates in February and March, which could slow capital outflows, has found that as the People's Bank of China eases monetary policy and the Federal Reserve tightens monetary policy.
In Japan, the central bank was forced to step up its bond purchases again on Wednesday as investors continued to test their ability to keep yields low as U.S. bond yields climbed. The yen suffered a historic streak of losses as a result, prompting the Governor of the Bank of Japan to step up warnings this week of sharp swings in the yen, suggesting that the BoJ may have limited time to maintain this dovish stance.
The Fed's tightening policy has had a clear impact on China and Japan, which complicates the monetary policy behavior of the mainland and Japan.
The divergence is expected to deepen as Fed officials have said they will raise rates at a relatively fast pace for the rest of the year to bring the benchmark rate to what they see as 2.25-2.5 percent or higher. After keeping the benchmark rate close to zero for the first two years, they raised the benchmark rate by a quarter of a percentage point in March.
Both China and the Bank of Japan believe that subtle turnaround measures will be taken to block the flow of funds. The People's Bank of China postponed a broad rate cut, instead using window guidance and other measures to ensure that banks lend to the most needed parts of the economy.
Amid silence on lower interest rates, offshore renminbi trading saw its biggest drop since July on Tuesday, while U.S. Treasury yields soared and the dollar strengthened. The People's Bank of China on Wednesday set the renminbi reference exchange rate at a low level.
Japan is also treading cautiously, as evidenced by the Bank of Japan's governor warning of sharp swings in the yen while insisting on a commitment to continue stimulating a fragile economy. The last time Japan sold the dollar and bought the yen was in June 1998, when the Asian currency crisis was at its worst, so the Japanese stock market rose sharply in the morning, but the central bank fell after the speech, and A shares also fell in response, and the Asian stock market entered the most critical time.
According to the information obtained by the Gua Ge family from relevant sources, the Bank of Japan may consider making significant policy development in terms of inflation rate and growth expectations next week. After the two-day meeting, the bank expects to release these forecasts in its quarterly economic outlook report on April 28, which is next Thursday and next Friday is the last trading day of A-shares before May Day, and I believe we have guessed what will happen.
At this critical juncture, He feels that Japan and the mainland cannot be completely decoupled from the Fed, because doing so will further weaken our currency and widen the yield gap with the US dollar. The editor believes that the Bank of Japan is likely to abandon its yield curve control policy, and the People's Bank of China may move further away from a wide range of interest rate cuts and then use other channels to inject capital into the economy, so the new stimulus measures are expected to replace the interest rate cuts, which may already be a fact.
No one can escape this rapid tightening policy that the Fed is implementing. The Fed isn't the only driver in China or Japan, with the war in Ukraine unnerving global investors, as has the outbreak in Shanghai. As energy import costs soared, Japan also experienced a trade deficit, further weakening the yen.
At the same time, the outflow of funds from the mainland has been relatively modest due to the sharp fluctuations in the yen's exchange rate. Changes in portfolios are to be expected when yield differentials between countries move in the opposite direction, which is the law of international macroeconomics at work.
The Fed is expected to focus on raising interest rates in the coming months, which will continue to be a factor. Fed policymakers are reinforcing their expectations that they will raise rates by half a percentage point next month, while interest rate futures are almost entirely priced at a half-percentage point hike at the Fed's May 3-4 meeting. At that point, officials could also announce the start date for the start of a nearly $9 trillion balance sheet cut.
Speaking Monday that the St. Louis Fed should not rule out a bigger rate hike, he cited Greenspan's 75 basis point move in 1994. This aggressive climbing cycle will inevitably draw foreign investors away from competitors, not just China, but other emerging markets feel will experience similar trends.