One leg of Japan has stepped out of deflation!

The original market logic should be changed, and the successful experience behind it is more worthy of our thought......

1

While the financial circle is still waiting for the Bank of Japan to officially announce an interest rate hike this week (abandoning negative interest rates and YCC policy), Japan's Mitsubishi UFJ and other major banks have begun to raise deposit rates.

For example, Mitsubishi UFJ, the interest rate on fixed deposits before 5 years has increased from 0.001% to 0.002%, and the interest on fixed deposits for 5 to 10 years has increased from 0.001% to 0.07%-0.2%.

Don't look at the deposit rate to rise so much, but the signal it sends is very strong:

Japan has walked out of deflation on one leg and started to raise interest rates!

Some people may wonder, the Bank of Japan just held a meeting on Tuesday to maintain the original negative interest rate policy, and he did not officially announce the start of interest rate hikes, why do you say that Japan has started to raise interest rates just because some Japanese banks have raised deposit rates, and also falsely claim that Japan has come out of deflation?

To answer this question, we need to figure out which is more authoritative, or who we should believe, whether the market spontaneously raises interest rates or the central bank's official interest rate hike.

My answer is that the market is the most authoritative!

Whether it is a rate hike or a rate cut, the market's reaction will always come first.

Many people make the mistake of not understanding what the interest rate is, just relying on the official announcement, and this kind of information has no value to us when the official announcement comes.

Looking at various countries, there are three main markets that reflect interest rates: one is the interest rate generated by borrowing between central banks and banks (policy interest rate), the other is the interest rate generated by borrowing between banks and financial companies (money market interest rate), and the other is the interest rate generated by borrowing money and borrowing money (capital market and credit market, most of which can be accessed).

But all careful friends can almost find that the logical flow of raising interest rates or cutting interest rates is almost the same, namely:

What kind of interest rate level does the economy need - the market gives the judgment of whether to raise interest rates or cut interest rates (monetary and capital markets) - reality and expectations are fulfilled - the central bank adjusts to follow the pace of the market!

To put it bluntly, the market goes first, and the central bank follows!

For example, in the past two years, because there are very few people who have borrowed money, our banks have frantically lowered the interest rates on consumer loans and business loans to lower the interest rates required by the policy. Then, this situation did not change for three or two months, and the economic data was a mess, and the central bank had no choice but to cut the policy rate as well – the most representative of which was the August 2022 cut.

For example, this is the third time that our bank has lowered the deposit rate this year (please refer to the treasury bond market).

As the so-called Chunjiang plumbing duck prophet, the more liquid market reaction is the most real, and the central bank acts according to market reaction.

At present, the fact that Japanese banks have raised deposit rates indicates that they are willing to bear the cost of raising deposit rates because they have found that the economy is beginning to recover and that loans are more profitable than before.

Although the intensity is small, this is the first time in Japan in more than 20 years, and the significance of the transition is very strong!!

2

Perhaps one of Japan's legs has already stepped out of deflation.

The main reason for the use of the words "maybe" and "one leg" is that Japan abandoned its low interest rate policy in the early 2000s due to the improvement in the economy and inflation, and soon Japan fell into deflation again.

There are lessons from the past, and I say this for the sake of rigor.

But

This time is obviously different from the last time:

First, this time the market (the Bank of Japan) raised interest rates because they felt that the economy was improving

Last time, the Bank of Japan unilaterally raised interest rates by feeling good about itself, and the market did not buy it.

Second, Japan's inflation target has exceeded the 2% target for 17 months, unlike the last time, which was only half a year.

Moreover, in 2023, Japan's inflation will remain above 2% despite the fall in energy prices, which is enough to show that the main cause of this round of inflation in Japan is not only "imported inflation", but also the vitality of the Japanese economy itself.

The proof is that even the Bank of Japan, which has been struggling with the fear that raising interest rates will plunge Japan into deflation again, said in the minutes of its December meeting: "The economy is slowly recovering, and the wage-inflation spiral is slowly forming, and inflation will move above 2% next." ”

Source: Minutes of the December meeting in Japan

What does this mean?

It shows that the Bank of Japan also recognizes that the economy is recovering under the positive spiral of "wage-inflation", and that the inflation level has reached the target, and it should raise interest rates when it is out of deflation.

However, due to the uncertainty of the external environment - "global economic slowdown and geopolitical tensions", the Bank of Japan did not dare to raise interest rates hastily.

Perhaps, this is also the reason why high-ranking officials of the Japanese government attended this meeting: discuss it carefully and don't make a mistake.

3

For us,

The more this is the case in Japan, the more opportunities there are!

This is because the money-making effect of the entire Japanese economy has shifted upwards, which is a fact. And the more the central bank twists and turns

The more accommodative (lower than the level of interest rates required by the economy), the better it is to push up asset prices.

At the moment, Japan's real estate and equity markets have cashed in some of the positives, while opportunities for the yen and Japanese government bonds have not yet burst out.

Two days ago, a "average price of new houses in the Tokyo area is about 4.12 million yuan per unit, a new high in a single month" went viral in China, and Japanese housing prices rose by 36.7% compared with the same period last year. Japanese stocks rose 17.9% early at the start of the year (from 28,000 to 33,000 based on the Nikkei 225).

Now, as long as the Bank of Japan does not turn around, it will be difficult for housing prices and the stock market to fall.

However, I think that

Next, under the "step-by-step compromise between the Bank of Japan and interest rate hikes", there will be more opportunities for long yen and short Japanese bonds.

Because the more depressed and distorted the financial market is, once the consensus (Japan's official interest rate hike) is formed, it will go crazy beyond your imagination.

Now that the yen and Japanese government bonds are completely controlled by the Bank of Japan, he will eventually bow to the reality that "the economy will have to raise interest rates", otherwise it will only create a bubble!

Next, I will continue to pay attention to the changes in Japan's economic policy and capital market, if you want to look at the investment opportunities in the outside world like me, and are interested in the Japanese market, you can scan the QR code directly at the end of the article to join.

4

Finally, I would like to share with you why Japan has not been out of deflation after nearly 20 years of easing, but has recovered after the new crown epidemic?

Looking at various data and materials, combined with the actual situation in the past two years, I found that:

When the balance sheets of enterprises and households are seriously damaged, the central bank's monetary easing effect is very average, and it is still necessary to transfer fiscal policy leverage to enterprises and residents (or even directly throw money)!

Here's a chart of Japan's fiscal spending during the pandemic: it rose sharply by 15% over the decade before the pandemic (some of which was paid directly by the government).

The result immediately improved residents' consumption and the motivation to increase leverage. In the past 20 years, Japanese residents have been reluctant not to increase leverage, but they suddenly increased their investment and consumption during the worst epidemic period, do you think it's strange?!

Perhaps, this is the key to Japan's deflation on one leg this round.

And looking at the present, do we need to take a good look at it......

At the end of the article, I would like to emphasize to you once again: investment must broaden the horizon, break the information gap, and predictably judge the change of direction.

Layout in advance in order to obtain excess profits.

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