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.