Further hikes by the ECB will be difficult afterwards, but…

After Thursday’s FOMC, the market mood seems to flow somewhat vaguely. First of all, let me tell you about the decision of the central bank of Japan on Friday. The Bank of Japan’s dilemma is that, after all, prices must be caught going up too much. Then, in order to control prices, we need to control the weakening of the yen.. To solve this problem, the U.S. should lower interest rates or Japan should raise interest rates. There’s an atmosphere for the U.S. to cut interest rates! So, the Bank of Japan began to open the top of the YCC little by little in December last year. The problem is that the pressure to increase interest rates accelerates after opening the top. Two months after opening the floodgate of 0.5%, the Bank of Japan had to be a little embarrassed when the interest rate on Japan’s 10-year government bonds rose to 0.75%. So, even if interest rates rise, you will have a strong desire to control them so that they do not rise too fast. So, in order to prevent rising interest rates, long-term government bonds are purchased and efforts are made to suppress the rise in interest rates.

The problem is that the yen is supplied by buying government bonds, which intensifies the weak yen. The intensification of the weak yen points to an increase in prices. Allow a little more interest rate rise to put the brakes on. The Bank of Japan hopes interest rates will rise slowly.. The excited mayor doesn’t wait for it. It’s pushing up interest rates. At some point, when it is pushed up to 0.75%, it is embarrassed and cannot bear it, and it presses interest rates while purchasing government bonds. In the process, the yen was released again, and the weak yen intensified, and the dollar exceeded 148 yen. Also, I was flustered and needed to raise interest rates to control this, but the 10-year interest rate exceeded 0.7% at some point. If you want to raise interest rates slowly, you have to buy government bonds to control this, so the yen is weak, and this is also burdensome because you have to raise interest rates to prevent the yen from weakening. One day, the yen is 148 yen, and the interest rate is 0.75%.. It’s gone up to a pretty high level. In terms of the yen, it is close to the 150 yen level per dollar that was kept in full force in November last year.

Maybe that’s why… There has been a significant increase in references to verbal interventions. Not only the Japanese Finance Ministry but also the Chief Cabinet Secretary are showing strong vigilance against the weak yen. (It was similar in November last year.)^^) Let’s take a look at the Japanese finance minister for a moment.

“Expressing opinions on the level of (exchange rate) and the speed of the progress of the yen’s depreciation may have an unpredictable effect on the exchange rate,” Finance Minister Suzuki said. “The government will closely monitor the trend of the foreign exchange market with high tension and take appropriate measures against excessive fluctuations without excluding all options.” (News 1, 23. 9. 22)

And even Secretary Yellen came forward to talk about this… Let’s quote for a moment.

U.S. Treasury Secretary Janet Yellen also said the day before, “It can be understood if Japan is trying to mitigate volatility, not intervene in the market to affect the exchange rate.” Bloomberg said that the market interprets Yellen’s remarks as a sign that the Japanese authorities will approve action if the yen changes rapidly for the time being.” (Seoul Economy, 23.9. 20)

Yes… It’s a comment that if it’s not to manipulate the exchange rate, but to prevent the unilateral trend toward weakness, it’s acceptable to intervene in the market to some extent. By the way.. I feel like I’ve heard it before. Let’s just quote one more time.

The U.S. Treasury helped the yen rebound. The U.S. Treasury Department said on the 22nd (local time) that it did not intervene in the exchange rate market in cooperation with the Japanese government, but understood the intervention. “The Bank of Japan intervened in the exchange rate market today (22nd),” U.S. Treasury Department spokesman Maakl Kikukawa said in an emailed statement. “We understand Japan’s actions.” The Japanese government explained that this is aimed at reducing the volatility of the yen, which has recently soared. The U.S. did not participate in Japan’s intervention, Kikukawa added. (News 1, 22.9.23)

Above is the article on September 20th, the requirement is the article on September 23rd. Why do you keep quoting similar articles.. You’ll be opposed to it.. It’s a mistake. Look at the year of the article. Yes… It’s an article on September 23, 2022. The above quote is from September 20, 2023.. Around a year ago, I think there was a very similar story to now. And for your information, on September 23rd last year… It was a time when the market mood deteriorated dramatically as Powell gave the famous eight-minute speech at Jackson Hole in late August and continued to shoot giant steps. At that time, as the dollar strengthened and the yen weakened significantly… (Nearly 150 yen) Thus, Japan’s intervention to control the weak yen has begun… The U.S. Treasury Department said that if it’s to reduce volatility.. What can I do? I created an atmosphere of tolerance.

How will you feel when you see an article like this? For example, from the perspective of investors betting on an additional weakening of the yen, if it exceeds 150 yen, there is a possibility of strong market intervention like last year.. Wouldn’t it slow down because of that? If the market slows down, the pace of the yen’s weakness will gradually decrease as it approaches 150 yen. Then I’ll be able to buy time. Time to slowly create a rise in Japanese interest rates… At a really dangerous moment, we can think about how to intervene in the market through international cooperation with the United States.. Japan will be able to buy time as the burden of foreign exchange speculators who feel the additional weak yen is high… You’re going to slowly make changes to interest rates. I don’t know the timing, but… I told you this before, right? When the market realizes this series of situations and sighs and falters that it will not be easy to raise interest rates… I think it will make a surprise change. It’s a central bank that likes surprise attacks. The Bank of Japan…Haha

Then I think this question will come right away. In the end, as the dollar strengthens, other currencies are struggling… When will such a strong dollar be lifted… That’s the question. In fact, rather than strengthening the dollar… When will financial market conditions see light in this strong King Dollar phase.. I think it’s a question.. We can use the situation of the past year as a lesson.

Next, let’s take a moment to talk about the ECB. The ECB has launched a surprise additional rate hike, defying market expectations that it will keep interest rates unchanged. The growth slowdown was so strong that the additional increase here is too much.. There was a strong perception that… If we don’t catch inflation now and this is stuck, we might not have a real answer.. I think the fear of that played a bigger role. In the end, it is not a structure of slowing growth vs. high prices… As the structure of slowing growth vs. fixed inflation emerged, consensus was formed within the ECB on further interest rate hikes. The immediate slowdown in growth is not the problem… They agreed that the risk of prolonged inflation should be suppressed in advance.

No one knows how much increase should be made to quickly suppress prices. There’s a way to look at the atmosphere while slowly raising it… There’s also a way to put it on and look at the reaction. If inflation becomes entrenched after slowly raising it… Even if additional interest rate hikes are made belatedly, the pain of additional hikes will remain, and the effect of curbing inflation will be greatly reduced. If I put a lot on top of it?? Yes… If you’re struggling, you can put it down as much as you put it up. Lowering interest rates from higher places by a stronger margin.. It could be a stronger boon. There seems to have been a strong perception within the ECB that it is better to see the situation after a quick tightening rather than a slow tightening to prevent inflation from becoming entrenched.

Further hikes by the ECB will be difficult afterwards, but… There are still cards available to the ECB. It’s quantitative tightening. There are quite a lot of government bonds built up by quantitative easing that has been going on for a long time.. By selling these long-term government bonds little by little, you will be able to think about ways to have a more direct impact on the market rate itself, not the base rate. I don’t think he would… Currently, the ECB’s benchmark one-day interest rate is 4.5%. On the other hand, the interest rate on Germany’s 10-year government bond is only 2.7%. This is called a reversal of short- and long-term interest rates in noble terms. If the base rate is tied up, short-term interest rates will be pressed… Quantitative tightening can push up long-term interest rates. Then, as the short- and long-term interest rate gap narrows, the loan margin in the banking sector can be revived. Banks in the eurozone are now barely able to increase their loans. However, there is a possibility that changes will occur if the loan margin increases. Anyway ECB expects to be very cautious in the future in raising interest rates further.

If you look at the ECB’s case, it’s not a structure of slowing growth vs. price stability… Slowing Growth vs. Sticking Price… You can see that the composition is the concern of central banks right now. Wouldn’t this concern apply to the Fed? If he is right, wouldn’t Powell be concerned about over-tightening rather than under-tightening? If it becomes entrenched after under-tightening, it will take a much longer time to fix it and a much higher interest rate for a long time.. Then I wouldn’t be more concerned about growth than the Eurozone.. Wouldn’t it be possible to consider raising interest rates a little more? Maybe that’s why.. This person appears again and says this. It’s Bullard… I’m quoting an article

In an interview with Bloomberg TV on the 21st (local time), former President Bullard said, “I think (further interest rate hikes) could be good as ‘insurance’ to ensure that core inflation falls at an appropriate pace and achieves the 2% price stabilization target in an appropriate period of time.” (Asia Economy, 23.9. 22)

Yes .. The key to this Bullard’s comments is an increase in insurance interest rates. Wow… In 2019, Fed cuts interest rates… I used the expression “insurance rate cut”. And it was Bullard who was at the forefront of such a cut in insurance rates. This time, insurance rate hike… In the end, I’m saying that it would be good to raise insurance rates to keep prices in a timely manner. If there is a problem, you can lower it… What are you afraid of