One week after we explained not once but twice that next week’s main central bank event is not the Fed – which won’t do anything – but the Bank of Japan, even CNBC has finally figured it out, observing with about a 7 day delay that “Everyone’s waiting for the Federal Reserve in the week ahead, but the real action may be coming out of Tokyo.” Well, thanks for that.
But while it’s clear that Yellen won’t dare shock the market (which now trades with a 20% probability of a September rate hike and as we showed a year ago, the Fed has never hiked unless the market is already pricing in at lest 60% odds), the question remains – just what will Kuroda and the BOJ do, especially since as we wrote last week, not even the BOJ knows what it will do, and has instead flooded the market with news report trial balloons covering every possible, even contradictory, possibility. Which also makes the BOJ’s decision that much more important.
As DB points out, “this week will be the litmus test for whether central banks are in shift mode as regards ongoing accommodative monetary policy. Investor consensus revolves around the notion that monetary policy has run its course and it ‘needs’ to be supplanted by fiscal policy or at least combined with fiscal policy, via helicopter money, to be effective. The potential for a BoJ move on short rates and a shift in QE plus a Fed insistence on hiking despite market expectations (including a ‘hawkish’ hold for September) might be considered to be consistent with a steeper curve.”
This post was published at Zero Hedge on Sep 17, 2016.