Risk-off market following BOJ policy meeting rate hike and soft US jobs data

A massive risk-off market spread as the Fed became perceived as Behind the Curve against recession. Japan’s Nikkei Stock Average fell by JPY -4451, more than on Black Monday. Asian hours were dizzying, with risk-off bullets going back and forth. Behind this movement, two policy errors are said to have caused the market to move sharply: the Fed’s refusal to start cutting interest rates despite the recession, and the Bank of Japan’s sudden hawkishness, which took the market by surprise. The focus will be on overseas markets, particularly US stocks. If US stocks fall, the Nikkei will also underperform, and if US stocks rise, the Nikkei will bottom out. It depends on US stocks.

The USD/JPY pair has been gradually declining in volatility and finding a place to settle down: the pair moved up to around 149.40 yen, but failed to get above 150 yen due to strong selling pressure. It looked as if it would fall back and drop further below the 146 yen level, but there were no players who had to beat and sell lower, and it did not run lower either. It is not easy to get to the ¥150 level, but the selling area may be close. The next development to consider will be the Jackson Hole meeting on 22-24 August. The US is likely to enter a phase of interest rate cuts, before which dollar speculation is likely to accelerate.

In Japan, Prime Minister Kishida announced that he would no longer run for the LDP presidency and the election campaign has started, but there is still time as the polls will open between 20-29 September. Who will be the new Prime Minister and what his policies will be, and the changing dynamics within the LDP will have an impact on Japan’s monetary policy, so it is important to pay attention.