Yen has surged and Nikkei (Japan shares) trashed.

The initial headlines were that the BOJ had left its policy unchanged, which they have.

• to maintain a -0.1% target for short-term rates
• and a 0% cap for the 10-year bond yield (around 0%)

BUT they widened that band in which they allow the 10 yr JGB to move from 0.25% to 0.5%. This, in effect, is a long-awaited ‘pivot’ from the BOJ. A mini pivot for sure, but given nothing was expected until April, its significant.

More significant items from the statement:

• to increase bond purchases to JPY 9tln/month in Q1
• will review operation of Yield Curve Control (YCC)
• to conduct additional JGB purchases on December 22

In widening the band for the JGB target, the BOJ says that “the functioning of bond markets has deteriorated… If these market conditions persist, this could have a negative impact on financial conditions.”

JPY has surged, USD/JPY plunged to circa 134.30 while the Nikkei dropped (futures trade is active, down over 4%, physical is closed for the lunch break … traders getting indigestion as we speak)

The outcome of the Bank of Japan December 2022 monetary policy meeting.

Main policy unchanged, as widely expected:

• to maintain a -0.1% target for short-term rates
• and a 0% cap for the 10-year bond yield (around 0%)

more to come (see separate post)

The bombshell is the Bank of Japan adds that they will review operation of yield curve control

• that they will expand the band around its 10 year yield target to 0.5% above and below (from 0.25)
• will increase bond purchases to JPY 9 tln a month in Q1

Morgan Stanley’s chief US equity strategist, Michael Wilson:

• The fixation on inflation and the Fed continues, but markets appear to have moved past it and onto the real concern – earnings growth/recession
• Rates and inflation may have peaked, but we see that as a warning sign for profitability

• The earnings recession by itself could be similar to what transpired in 2008-09
• Our advice — don’t assume the market is pricing this kind of outcome until it actually happens

Morgan Stanley 2023 forecast for earnings (base case) is $US195 per share for the S&P 500

• vs. consensus of $US231

MS’ bear case for earnings per share is much lower again, at S180. MS says that if that’s correct then:

• the price declines for equities will be much worse than what most investors are expecting

MS’ forecast is drop into the 3000 to 3300-point range, favouring the low end of that range given its earnings outlook.