After the release of Japan labor cash income data and US non-farm data, Japan 225 index CME futures fell by more than 5% again, as of press time. $Nikkei 225 (.N225.JP)$ Fell 2.98%.
The wide market volatility has arrived.
In August, the non-farm payroll increased by 0.142 million, which was lower than the market expectation of 0.16 million. The market believes that there is no suspense for the Fed in September.
Historically, during the Fed's interest rate cuts, global stock markets have mostly experienced significant declines.
Michael Hartnett, Chief Investment Strategist at Bank of America, said that the market is 'selling the first rate cut', risk assets have been actively leading the Fed and are no longer concerned about lower growth.
CBOE Volatility Index $CBOE Volatility S&P 500 Index (.VIX.US)$ Increased to 22.38, a surge of about 49% last week.
In the commodity market, silver fell 3.5% on September 7th, and US oil fell 1.43%, breaking below $70. Gold also fell in the broad market, with London gold now falling below $2,500.
The seven major technology stocks in the US stock market fell simultaneously.$Tesla (TSLA.US)$The closing price plummeted more than 8%.
Expectations for an interest rate hike by the Bank of Japan are rising.
According to data from the Japanese Ministry of Health, Labour and Welfare, real wages adjusted for inflation increased by 0.4% year-on-year in July, rising for two consecutive months, mainly driven by wage increases during spring labor negotiations and summer bonuses. During this period, nominal wages increased by 3.6%, rising for 31 consecutive months.
After the closing of the Japanese stock market on September 6th, the data on cash income of Japanese labor force in July was released, showing a year-on-year growth of 3.6%, which is lower than the growth rate of 4.5% in June (the highest growth rate since January 1997), but still higher than the market's expected growth rate of 3.1%. At the same time, the Jibun Bank's August services PMI was revised from the initial estimate of 54.0 to 53.7, marking the seventh consecutive month of expansion in the service industry.
In addition, inflation in Japan may continue to rise.
Japan's 'rice shortage' has emerged in many areas since July. Officials in Osaka Prefecture have once again urged the Japanese central government to quickly release reserve rice to alleviate supply shortages, but their request has been rejected by central government officials. As of the end of June, the private sector inventory of rice in Japan was 1.56 million tons, a decrease of 0.41 million tons compared to the same period last year, reaching a new low since 1999. The average wholesale price of unprocessed rice in June increased by 14% compared to the same period last year, reaching the highest level since August 2013.
In addition to strong economic data, the Bank of Japan has also begun to signal further interest rate hikes.
Takehiko Hidenori, a special professor at the Graduate School of Policy Research at Japan's University, and former governor of the Bank of Japan, said in a video at the Shanghai Bund Summit on September 6: 'The Bank of Japan is trying to gradually approach the nominal neutral interest rate, which may be lower than 2%... Short-term nominal interest rates may be lower than 2% and may be around 1.5%, or even lower.'
The Bank of Japan has raised interest rates twice this year, but has only raised its benchmark interest rate to 0.25%, a far cry from the neutral interest rate level of around 1.5%.
Hidenori also said that Japan's current real natural interest rate may be around 0% or lower, which is consistent with the Bank of Japan's estimate. Last week, the Bank of Japan published a paper suggesting that Japan's current natural interest rate is between -1% and 0.5%.
Tsutomu Watanabe, a former Bank of Japan official and professor of economics at the University of Tokyo, also recently stated that the speed of Japan's interest rate hikes may be faster than expected, with the possibility of taking two more rate hikes this year. He believes that the Bank of Japan should strive to better communicate these actions to ensure that the market does not panic.
The yen still has room to appreciate against the US dollar.
The yen has appreciated by more than 11% against the US dollar since its low on July 3. From July 31 to August 5, due to the rapid and significant appreciation of the yen, the global stock market experienced a sharp decline, leaving a deep impression on investors. Currently, the yen is hovering at its high for the year against the US dollar.
Arif Husain, global head of fixed income and chief investment officer at PIMCO, said that in early 2024, the yen fell to its lowest level since the mid-1980s. However, due to the Fed's intention to cut interest rates, coupled with the ECB's policy easing, the pressure on the Bank of Japan to raise interest rates may be relatively low.
Arif Husain continued to explain that the widespread market volatility on August 5 has not come to an end. The tightening of the Bank of Japan's policy and its impact on global capital flows could have a huge impact in the coming years. However, given the impact of other trends, such as fiscal expansion in some developed countries being unsustainable, market volatility may become the norm rather than a major shock. But he added that the investment landscape in the coming years may be more challenging. The impact of the Bank of Japan's policy tightening on global capital flows is one of the changes, and investors should pay close attention to the related impacts.
The chief strategist at Orient Capital Research believes that as the arbitrage of the yen continues to be unwound, there is room for the yen to expand its gains. Monica Defend, head of investment research at Orient Capital Research, said that the Bank of Japan's interest rate hike in July and the change in its monetary policy have completely altered the landscape for the yen, "We believe the fair value of the yen was 140, and it still is."
Editor/Rocky