BOJ likely to raise rates next month, strategist says

Nicholas Smith is the Japan strategist at CLSA, joins us with his thoughts. Nicholas, what do you think will happen this morning? Well, I think the, the equity markets are expecting it to be something of a nothing burger. So the, the chances are that they'll rein in the, the amount of bond buying they're doing. They've got to do a certain amount of bond buying just to offset the, the maturities. So they own 53.8% of the, the bond market at the moment. What we're expecting though is that later on, probably next month, they'll raise rates and they'll do so again later on in the, in the year. So that's, that still means upside for financial stocks, for example. And the, the, the reasoning is that they've been absolutely waterboarding the, the Japanese consumer. So wage hikes are now about to be overtaken. So we had the biggest wage hikes since 1991. And that's about to be her overtaken by a a summer of discontent as as we get an updraft to her to inflation of about 1 1/4 points from policy shifts, particularly taking out subsidies on energy, that's going to make things tough. So they need to to reverse that by. Raising rates and. Strengthen the yen, which means that Japan would be paying less of its consumer wallet to foreigners. OK. Nicholas, so a bit of a nothing burger, but what are you looking out in terms of the language around the guidance particularly on on the rates, but also on on how gradual certainly you know trimming the bond purchases if that's what we see is because I'm wondering whether you believe that this communication and the messaging would either be vague or more structural and clear cut and which would be better for them because there has been some argument in the market that if it was structural then this could be? Complicated because then they would have to live up to that. So what do you think we could hear in terms of some of that language? Surely we go back to that speech of deputy governor human or from the beginning of December where he was essentially saying we're terribly sorry, but the the slashing of interest rates hurt the financial sector very badly. It hurt the household sector because their credit balances are much higher than their than their mortgage balances. And it also didn't help corporates because they paid off their their debt. So what they seem to be saying is we need to normalize the interest rate structure reasonably fast and they need to make that message much clearer because some people seem to have slept through the the Himanor speech, but. I think it's, it's clear they're meaning to normalize, but with a, a whole bond holdings as large as they've got, they've got to be very careful how they do it. So the the risk of the the yen carry trade causing problems in particularly other countries.