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Please see today’s daily update from EPIC Investment Partners below:

Bank of Japan Board Member, Hajime Takata, has signalled there is a growing case to end Japan’s negative interest rate policy, with the BoJ’s goal of achieving 2% inflation “finally in sight”. “With monetary easing continuing, I believe we have reached a point where attainment of the 2% price stability target is finally in sight, despite uncertainty over the Japanese economy”, Takata said, adding “It is necessary to consider shifting gears from extremely powerful monetary easing, and how we should respond nimbly and flexibly toward an exit. 

Takata’s remarks, who is seen as a neutral on the nine-member board, will fuel speculation that the Bank of Japan may be preparing for its first rate rise in 17 years. However, Takata did not provide specific timing for any such increase, meaning the next BoJ meeting in March will be even more closely watched. 

 After Takata’s remarks, the yield on the policy-sensitive 2-year notes rose 1.5bps to 0.175%, the highest level since the War Horse film was released. 

We also heard from a number of Fed members overnight, all of which continued to tow the party line, leaning towards hawkish patience.   

Collins said that January’s CPI was an example of uneven inflation progress and that she wants to see more evidence of inflation stability. However, she did say that it’s unlikely the inflation decline can be sustained without slower growth. Bostic said that he expects inflation to continue its trajectory to 2%, although he is comfortable being patient on policy.  

Lastly, Williams said that he expects this afternoon’s PCE inflation number, the Fed’s favoured inflation indicator, to be around 2-2.25% in 2024 and at 2% by 2025. He said that the Fed could think about cutting rates later this year and that three rate cuts in 2024 is a “reasonable starting point”.     

Happy 29th February. 

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Charlotte Clarke

29/02/2024