▷ Ueda explicitly retires the phrase “more/ample time” to assess for the next rate hike - this “ample time” was the dovish pivot from the previous BOJ meeting in September.
▷ Core CPI revision for FY2025 lowered to 1.9% from 2.1%
▷ “US economy risk” now added to the official text of the latest outlook report
▷ “If the outlook is realized, policy rates will be raised” - what this really means
I honestly cannot recall a Bank of Japan monetary policy meeting press conference that was more predisposed to be as bullshit as Governor Ueda’s October 2024 presser.
Note that I am not saying this was a “non-event” by any means - there are plenty of critical points to dissect and take away from this. I am saying that the setup going in made for a clearly foreseeable and predestined bullshit exchange between reporters and Ueda.
What is at the forefront of everyone’s mind right now in Japan?
Politics, and foreign exchange. As in the sudden, self-inflicted implosion of the LDP ruling coalition’s majority in the House of Representatives not even a month into PM Ishiba’s “term in office,” as well as the 6-week, +10% rally on USDJPY, now firmly back into the 150s.
And what are the topics that every major central banker will always steer clear of commenting on, and be forgiven for doing so (and rightly so) as per conventional protocol?
Politics, and foreign exchange.
Indeed, this was a press conference for a no-change decision that was littered with endless and useless questions related to Japan’s raging political dumpster fire set ablaze on Sunday, when Asia’s most stable major democracy shattered the ruling coalition’s status quo majority at the hands of the second lowest voter turnout in the postwar era.
I really don’t understand why these clowns in financial media, who are members of a tiny select group of extremely privileged direct press access to the Bank of Japan governor following an official policy decision, would throw away their question on topics that they (should) know will just result in some iteration of “no comment.” I suppose it could be chalked up to just another characteristically Japanese worker bee who is merely going about their day at work by unproductively going through the motions to collect a frozen base salary in exchange for job security - the byproduct of what a non-merit-based system produces. Still, they’re ceding and wasting immense responsibility.
To be fair, Governor Ueda didn’t actually convey his non commentary solely with a verbatim “cannot comment” - much of his almost unconditional responses to a spectrum of questions was bringing everything back to the Bank of Japan’s official slogan since July’s shock rate hike :
“…if the outlook is met, BOJ will raise rates accordingly.”
As in…
Q: Gov Ueda, how will you work with a non-majority ruling LDP coalition/fractured opposition government/leadership uncertainty? (or…) Gov Ueda, will the path of QT that BOJ has laid out have to now be altered upon an expected increase in fiscal deficit spending in the given state of parliament?
A: (After “I cannot comment on political matters, but…”) "It is important to explain and adhere to our stance that we will adjust the degree of easing if the economic and price outlook is realized." (This quote is Ueda verbatim in response to one of many political questions.)
And so, because Bank of Japan cannot actually say “we are on hold because of the domestic political turmoil that has exploded, as well as the consequential US elections” - for which, they know that everybody knows that this is what is very obviously behind today’s no change - they need to sprinkle in various other “reasons” and explanations to justify being on-hold.
After all, isn’t it so that “if the outlook is realized, rates will be raised?” And (redundantly and obviously), that BOJ will not hike rates while markets are in mayhem (as per Deputy Gov Uchida 2 days following NKY -12% single day Black Monday drop)?
Well, given Japan CPI has been north of 2% since May 2022, and equity markets are currently off their record highs by just -5%, compared to being -25% in a bear market plunge on Black Monday, there is a need to manufacture reasons why they aren’t following their own conditions that are being met.
I will go over those reasons, for which everybody is currently taking seriously at face value, reading into and extrapolating from (a huge mistake in approach), and I will provide you with the actual big picture underway.
Here are the key points from this meeting and press conference that are making the headlines, which I will give my take on for each:
Much like Powell and the term “transitory,” Ueda has explicitly retired the phrasing of “more/ample time” to assess for the next rate hike - this “ample time” was the dovish pivot from the previous BOJ meeting in September.
CPI revision for FY2025 lowered to 1.9% from
The heavily cited “US economy risk” has now been added to the text of this latest quarterly outlook report released with the October BOJ policy statement.
“If the outlook is realized, policy rates will be raised” - what this really means.
But before we get to those, let’s take a quick look at market price action on the day, as it appears NDX may have a down day - or not, but more importantly, is being driven by Japan in the immediate term.
Do not read into mid-press conf short term market movements - especially with a BOJ Gov who is once again providing nothing new to “price in,” and far more importantly - because we still have unsettled matters of: FOMC, as well as who will govern Japan & America.
Nobody (human active manager) is trading JPY mid-press conf in such size to move spot rate right now based on Ueda’s word for word of saying nothing.
That absence of flow leaves the algos and bots’ (+🇯🇵retail) activities as more visibly pronounced in market impact.
And it seems that there may be “PTSD support” at the 152 level to the downside in the immediate term.
To follow up on this - USDJPY and NKY futures were moving directionally together intraday - and NDX futures were moving alongside as well, with all three abiding by USDJPY’s price action levels rather than its own - once again, testing USDJPY 152 to the downside, and exhibiting correlated behavior eerily reminicent of pre-Black Monday “Crowdstrike” USDJPY 152 support.
USDJPY puts an floor under NKY and NDX, but only after it had been a culprit in pulling the equity indices down alongside it in the first place.
Yes, NDX was getting pulled down with NKY futures upon NKY futures session re-open at 16:30 Japan time - mid Ueda press conference.
But what was behind the NKY futures downside move? USDJPY. So, if NDX is getting pulled down alongside NKY futures, and NKY is getting pulled down by USDJPY, then one can assume that JPY is impacting NDX futures with or without the NKY middleman.
And indeed, that seems to be the case - as well as the USDJPY 152 support that NDX also traded alongside.
Note that in all of these charts within this group, I am also showing the trading volume panel on NDX futures (green) - and you can see NDX trading activity escalate into the sell-off. and intraday volatility swings:
Furthermore, you can see NDX being driven directly by JPY strength, in the time frame between 3:15PM (JST) to 4:30PM - as that window of time is when NKY futures are in between trading sessions and are therefore not trading - and it was during this time when USDJPY fell rather sharply, followed by NDX futures.
As opposed to NDX indirectly tied into JPY via NKY futures.
Zooming out a bit - there are two key levels of USDJPY that started to bring back something reminiscent of that late July - early August correlation of 1 to the downside were USDJPY upside resistance at 150 broken, and then upside resistance at 152 broken. Breaching these levels had cross-asset impact, namely on US and Japan index futures relative price action (for whatever reason - programmed flow likely).
For much of September through mid-October, NDX and NKY were directionally parallel with one another- some of which was related to the China stimulus surge in the Hang Seng index in late September ~ early October. But in the back half of Oct, NDX and NKY began to diverge:
This is due to USDJPY breaching those key upside levels of 150 and 152.
Removing NDX from the picture, you can see that it was USDJPY that had diverged away from its prior correlation with NKY.
Here is USDJPY 152 marked (we are skipping over USDJPY > 150 breakout).
USDJPY through 152 put in another accelerated leg of NKY and USDJPY divergence - or, NKY down, JPY down convergence.
And as USDJPY cleared through 152, and NKY futures saw sharp downside, NDX futures followed thereafter.
That’s why this now matters - now that we are back above USDJPY 152, that level is now downside support - to either bounce off of (for all three - USDJPY, NKY and NDX), or to break down through. As of this writing and these charts (in the aftermath of the BOJ press conference) - it seems USDJPY 152 support held.
But as I had repeatedly said throughout crowdstrike yen 152 in late July - the important part here is not whether support holds or breaks, what matters is that cross-asset support has been identified at USDJPY 152, the cross asset pivot point in the immediate term.
And no, it will not be an exact repeat of late July - early August disaster in terms of the magnitude of the move. The positioning is far less crowded, as is the trading volume. These are not human beings, once again, these are algos/bots/systematics/lines of code trading flows. Human beings are not trading in such size as to visibly move markets on the heels of an ambiguous BOJ, a Japan government in turmoil, a US election around the corner, and an FOMC to follow. It is their absence that makes these algo flows far more easily visible with respect to their market impact.
So - I wouldn’t panic in anticipation of an early August repeat - this is low flow zero conviction green and red blinking tickers ticking away on servers somewhere. Not people, not the “real money” accounts.
Bank of Japan: October 2024
Here are the key points from this meeting and press conference that are making the headlines, which I will give my take on for each:
Much like Powell and the term “transitory,” Ueda has explicitly retired the phrasing of “more/ample time” to assess for the next rate hike - this “ample time” was the dovish pivot from the previous BOJ meeting in September.
Core CPI revision for FY2025 lowered to 1.9% from 2.1%
The heavily cited “US economy risk” has now been added to the text of this latest quarterly outlook report released with the October BOJ policy statement.
“If the outlook is realized, policy rates will be raised” - what this really means.
Retiring “ample time”
"Going forward, we will no longer be using the phrase, 'We have ample time.' We will make decisions based on information and data received by each meeting. If the probability of outlook realization rises, policy adjustments will be made as appropriate."
-Governor Ueda around 4:30PM
You may initially read this as a hawkish flip from Ueda, as the last meeting on hold was all about this “ample time” that kicked back BOJ rate hike expectations and OIS pricing - and if you find yourself thinking that way, don’t worry - everybody else is too.
This is not some “latest pivot to hawkish” Ueda - who actually did spend an unusually long period of time elaborating on this point, perhaps the first actual answer he’s given to a reporter’s question during a BOJ press conference.
But don’t let that fool you either. Governor Ueda has no idea what he is talking about. And I do not mean that in any sort of “attacking” manner - I am just objectively stating my observations. If just last meeting, he was suddenly saying “ample time” - and then this very next meeting, he is going out of his way to “retire” said phrase, then why is this one the “correct and believable” Ueda? Could it not have been the Ueda who started talking about “time” in the first place that was misspeaking?
April 2024: “There is no significant currency issue with JPY” - USDJPY goes from 155 to 161 within one trading day before getting yentervened upon.
June 2024: “Currency is a factor.” Ueda learns the hard way, and flips 180 from the previous stance.
July 2024: “If the outlook is met, BOJ will continue to hike rates.” Which is fine to say, and is still being said, but perhaps don’t pound the table with this new BOJ mantra right after you’ve shock hiked rates off the zero bound amidst a crowdstrike JPY 152 underway.
September 2024: “We have ample time.” A complete flip from the super hawkish July that is being blamed by many for blowing up the world, to now being very dovish.
October 2024: “Going forward, we will no longer be using the phrase, 'We have ample time.' We will make decisions based on information and data received by each meeting. If the probability of outlook realization rises, policy adjustments will be made as appropriate." Where we find ourselves today.
See a pattern? Any one of the above more valid than others? No. Just because its the last thing said, doesn’t make it the “valid” one. And consider the following reality:
Governor Ueda, as I’ve said multiple times and will continue to point this out as long as it remains true, is a horrendous communicator. He does not know what he is talking about. Thats what I mean when I say that.
Do not think that each one of these twists and pivots and one-offs are all based in reality. They may or may not be genuine, and frankly I don’t care if they are or not - I care how viable and foundational these statements are. And none of them are. Do not read into his words. Chances are, and as history has so far shown, following his words is the exact opposite of what you should be doing in the intermeeting period, as he will 180 flip on the prevailing “last thing said.”
CPI revision lowered to 1.9% from 2.1% for FY2025
This is also making headlines. And this is also nonsense that shouldn’t ever be read into. This is basically the exact same concept that I am describing above - of not falling for the chase around for whatever the “latest thing” out of BOJ is.
So, core CPI was revised down from 2.1% in July’s quarterly outlook report → 1.9% in this October outlook report?
Cool.
Take a look at what they did in July’s quarterly outlook report.
Yes, in July, they revised UP from APRIL 1.9% → 2.1%
Again, they just revised BACK DOWN to APRIL’s 1.9%. They’re switching back and forth ±0.1% around the 2.0% “inflation goal” mark.
So, either they’re playing fucking games, or these are genuine projections and therefore they are very very very fucking stupid, indecisive and totally unreliable with their back and forth “measurements.” If they just kept their outlook for FY2025 at 1.9% in April, through July, through October, then we would be in the same exact place as we are now.
I don’t care what they do with their stupid outlook report, and to be frank - its not on them, its on us if we also fall for chasing this around. Even if BOJ is being genuine, its on us to know better than to follow their stupidity, or stupidly follow their “deception.” They need optionality, so they’ll be north of “the 2% goal” and south of it, back and forth.
They will search for, and will successfully find, any reason as to how they arrive at their figures, and why the need to change. For example, they often cite crude oil prices. Such as this:
“Comparing the projections with those presented in the previous Outlook for Economic Activity and Prices (Outlook Report), the projected real GDP growth rates are more or less unchanged. The projected year-on-year rate of increase in the CPI (all items less fresh food) for fiscal 2025 is somewhat lower due to factors such as the recent decline in crude oil and other resource prices.”
“…the recent decline in crude oil…” - really? Is crude at some crazy low unprecedented price level? No, no its not. (And by the way, if they want to play that game, the “lower low” unprecedented price level on WTI crude is going to have to beat negative -$37 per barrel.)
If it does have something to do with crude oil prices, then perhaps it may be worth also mentioning how USD has diverged from crude prices as of late- so that even if crude prices themselves “have declined recently” (they’re on a trading time horizon akin to my own speculative activities…) - USD has gone UP, essentially negating the lower crude oil prices.
And here is the thing - NONE of this data, be it realized actual Japan CPI, or BOJ’s projected CPI, matters for policy. Not once has there ever been a citing, a correlation, or even a coincidence with a policy outlook report change and a policy change in accordance.
“US economy risk” added to the text
I don’t have much to say on this other than - Ueda had been citing (blaming) US economic risk since the last meeting when he “flipped dovish” with “ample time.” So, now that its in the actual text, but coupled with his retirement of “ample time” - I guess the word processor at BOJ has a typing delay of a quarter of a year.
What I will say is that whenever BOJ needs some excuse to not tighten or remove accommodation, but can’t find a good culprit, they can always rely on shifting the blame to America.
No, this isn’t genuine. This is the Bank of Japan - as in, Japan’s central bank. Not America’s. And yes, the US economy has immense impact on Japan’s. But you know what likely has more relevance to Japan’s economy? Japan’s economy.
And note the very first sentence from the above- which brings me to the final and most important point:
“…if the outlook for economic activity and prices will be realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation.”
The problem, or, the irony of using this mantra is that it actually works antithetically with guiding policy.
Using an extreme example to illustrate - if BOJ were to have absolutely no intention and desire to ever hike rates, then under this “if the outlook is met, we will hike rates” slogan, BOJ could just set its “outlook” for inflation at some ridiculously unrealistic high level - say, core CPI at 20% for the current fiscal year. And as CPI figures come in at low single digits and nowhere near this impossible “20% forecast,” BOJ could continue to keep rates unchanged and policy accommodative, justified by “outlook isn’t met yet.” But then at the same time, if BOJ is projecting a 20% inflation rate, then they should be tearing the roof off of rates and blast them to the moon. In other words, the higher “the outlook,” the less likely it is “to be met,” and therefore the stronger the policy rate will be enforced to be on hold, rather than increased accordingly with their own projections of soaring inflation. That’s why it’s an antithetical discipline.
And all that aside, let’s be frank- their so called “outlook” and even their long-stated goal of achieving 2% CPI has been realized for over 2 years running.
So, while it may seem like a sensible framework for BOJ’s rate policy on the surface, this whole “if outlook is met, will hike rates” is a deceptive phrase that BOJ is using to have it fluidly mean whatever they want it to mean at any given time - it’s meaningless. Just because the repeated phrase itself remains unconditionally consistent, it isn’t worth anything if the actual application of the phrase is perpetually inconsistent.
This “if the outlook is met, BOJ will hike rates” is a tool being used to buy themselves meeting-to meeting flexibility, but under the disguise of policy discipline that is subject to economic realities unfolding (and frankly, it’s not a very clever disguise at that).
And ultimately, here is very simply why this is clearly just complete horseshit:
One again, here is “the outlook”
And here is Japan core CPI over the past 3 years - keeping in mind that the “goal” is to hit 2% sustainably.
“IF the outlook is met…?”
Maybe I’m crazy but it looks pretty damn “met” to me.
So, what THAT effectively means is- BOJ doesn’t care about ACTUAL, REALIZED inflation, it only “moves” according to its relative forward projections - but once those projections are met (i.e. has occurred already), it doesn’t matter, because it is perpetually fixed on a future outlook. And the future, by definition, will never arrive.
So, going forward, you will hear this again and again, unconditionally. You will hear it when they hike, you will hear it when they don’t hike but should be, in the same tone and cadence as one another, interchangeably. You will hear it as an “answer” or response to virtually any question asked by a reporter. You will hear it in parliament when they are called to be grilled about policy by one of these new bands of Lower House single-serving coalitions as we enter political martial law in Japan politics.
And each time you hear it, just know that it means one thing only - the Bank of Japan has no answer, no comment, and nothing they want to extend publicly, as well as no desire to have any perception of not having any of those things.
And each time you hear some “professional BOJ analyst/observer” cite this as something seriously taken at face value, you not only know what their subsequent next words out of their mouths are worth (zero - negative value), but you will know WHY the BOJ uses this phrase. Because it works on the vast majority.
What are your most probable expectation going forward, regarding Japanese rates and USDJPY going forward?