Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access both platforms from your single Saxo account.
Japan’s ‘lucky 7%’ GDP growth rate forces BoJ to abandon yield curve control
Charu Chanana
Chief Investment Strategist
Summary: Japan was an economic powerhouse for many years before the bubble burst in 1991 and a long period of stagnation began. Corporate profits and wages were depressed, and an aging society meant labour supply shortages and a drag on consumption. But a new bottom is found as deflation ends and wages and private capex pick up, bringing productivity gains and fast-paced economic growth.
The deflation era in Japan has ended, bringing wage growth back. Spring wage negotiations in 2023 resulted in a 3.6% rise in salaries, and 2024 could see an over 4% gain. Fiscal push from the proposed consumption tax rate cuts will prompt the Japanese consumer to move away from their savings mindset. As the current presidential term ends in September 2024, PM Kishida and his administration bring a host of populist policies that will bolster domestic demand further.
As demand growth is sustained, businesses announce capex increases. Abundant cash reserves of Japanese firms suggest a strong capex appetite, and this has also been reflected in BoJ’s Tankan survey for September which noted an expected 13.3% increase in capex in FY23 from 7.4% increase in FY22. Labor dynamics are also shifting, with labour supply waning due to the aging population, while demand continues to increase in healthcare and social welfare, and due to the increasing domestic demand. This feeds back into the wage pressures, creating a virtuous cycle.
Japan steps up its economic transformation agenda by adopting a framework for technology diffusion which helps boost productivity despite the labour shortages. Global supply chains remain in a flux, but that is a tailwind for Japan due to the increasing trend of friend-shoring, resulting in increased investments. More technology companies announce investments in Japan in 2024 amid government support. Technology cost savings allow Japanese government to deal with its debt and continue the fiscal easing to provide a sustained boost to growth, inflation and wages.
With a yield curve control policy in place, the Japanese economy is over-stimulated as real rates decline with nominal yields capped but inflation expectations rising. The BoJ is therefore forced to end its yield curve control policy in 2024. This causes a rout in global bond markets, as Japanese investors move money back home.
Market impact: Yen strengthens as Japanese investors repatriate money to domestic assets, pushing USDJPY below 130, EURJPY below 140 and AUDJPY below 88.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)