Summary of Key Points from the Conference Call Industry Overview - The report focuses on the Asia-Pacific economic outlook for 2026, with specific emphasis on China, Japan, India, Taiwan, and New Zealand. Core Insights and Arguments 1. **China's GDP Growth**: - Expected real GDP growth of 4.8% in 2026, surpassing consensus expectations of 4.5%-4.6% due to strong export growth and easing fiscal policy [6][5][4] 2. **Housing Market in China**: - The housing market is not expected to bottom out across all indicators; housing starts are down approximately 80% from peak levels in 2020, while construction activity has fallen about 60% [7][4] - Home prices have significantly declined, with expectations that they will remain lower by the end of 2026 [7][4] 3. **China's Trade Surplus**: - Anticipated to increase further, with a record trade surplus of nearly $1.2 trillion in 2025 expected to rise in 2026 due to competitive manufacturing and a focus on exports [13][14][4] 4. **US Tariff Relief**: - Modest tariff relief expected for Asia, particularly benefiting India, as negotiations continue to lower trade barriers [19][4] - Taiwan has signed an agreement to reduce US tariffs in exchange for significant investments in semiconductor and AI production [21][4] 5. **Japan's Fiscal Policy and Yields**: - No significant rise in bond yields expected post-election; fiscal policy may loosen but will be constrained by market pressures [25][26][4] - The yen is expected to strengthen slightly, moving away from the current weak levels [31][4] 6. **Growth Surprises in Asia-Pacific**: - Taiwan and New Zealand are projected to outperform consensus growth expectations, driven by tech exports and recovering economic conditions, respectively [33][4] 7. **Inflation Outlook**: - Inflation pressures are not expected to drive significant policy shifts among Asia-Pacific central banks, with CPI inflation returning to pre-COVID levels [41][4] - China and Thailand are expected to see continued easing in monetary policy due to low inflation [42][4] 8. **Central Bank Policy Rate Expectations**: - Anticipated tightening in Japan, Taiwan, and New Zealand, with the Bank of Japan expected to resume rate hikes [47][48][4] 9. **Asian Currencies Performance**: - Majority of Asian currencies expected to appreciate against the USD in 2026, with the CNY anticipated to strengthen due to strong fundamentals [52][4] Other Important Insights - The report highlights that most themes from the previous year were accurate, with notable surprises including the rise in government bond yields in China and the underperformance of the Indian Rupee [56][4] - The analysis includes a review of past predictions and their outcomes, reinforcing the credibility of the current forecasts [56][4]

Core View - The emergence of Prime Minister Sanae Takaichi, who is critical of the Bank of Japan's (BOJ) rate hikes, is contributing to downward pressure on the yen as she plans a snap election, which could allow for increased government spending and delay BOJ normalization efforts [1] BOJ Rate Expectations - There is a growing sentiment among BOJ watchers that further yen weakness could prompt earlier rate hikes, with 68% of those polled expecting a rate increase every six months, potentially placing the next hike in June or July [2] - Nearly 60% of surveyed economists believe the BOJ has fallen behind in its monetary policy, a view echoed by US Treasury Secretary Scott Bessent, who emphasizes the need for sound monetary policy communication from Japan [3] Inflation and Economic Indicators - Continued yen weakness, exacerbated by negative real interest rates, could lead to excessive inflation momentum, making it difficult for the BOJ to control inflation, which has averaged above the 2% target for four consecutive years [4] - The BOJ's upcoming meeting is expected to result in no change in rates, following a recent increase to 0.75%, the highest in 30 years, which has not alleviated downward pressure on the yen [6] Market Reactions and Future Outlook - Governor Kazuo Ueda must navigate his post-decision remarks carefully to avoid triggering further yen sell-offs, indicating that rates will continue to rise without committing to an immediate hike [5] - Bloomberg Economics anticipates the next rate hike in July, with Ueda likely to maintain a cautious stance during the upcoming election period [7]

In 2016, this Japanese company issued a public apology. For the first time in 25 years, they were hiking the price of a popular ice cream by 10 yen, or about $0.06%. And they were deeply sorry.Now, in any other country, this might have been an overreaction, but in Japan. Inflation is just completely alien as a concept. For three decades, the country saw stagnant or even decreasing prices, which is why a 10 yen price-hike for an ice cream was such a big deal.But a huge slide in the yen is helping change that ...

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **FX swap market** and its dynamics, particularly the **FX-Sofr basis** and its implications for global liquidity and investment strategies. Core Insights and Arguments 1. **Changing Global Liquidity Outlook** - Global central banks are diverging in their balance sheet management, impacting liquidity. The Federal Reserve has ceased quantitative tightening and is increasing its balance sheet through bill purchases, while the Bank of England and Bank of Japan are reducing their pace of QT. The European Central Bank is committed to passive QT for the foreseeable future, affecting the FX swap market [1][4][7]. 2. **Decline of US Dollar Premium** - The US dollar premium in the FX swap market, measured by the FX-Sofr basis, has declined in recent years, indicating a shift in demand dynamics [2][15]. 3. **Record High FX Swap Turnover** - Daily average OTC FX swap turnover reached a record high of **USD 4.0 trillion** in April 2025, with the US dollar accounting for **USD 3.6 trillion** of this turnover, reflecting its dominance in the market [3][19][20]. 4. **Market Participants and Their Roles** - Key participants in the FX swap market include banks, dealers, institutional investors, and central banks. Banks and dealers accounted for **80%** of daily turnover, while institutional investors contributed **USD 349 billion** [27][28]. 5. **Drivers of FX-Sofr Basis** - Six main drivers of the FX-Sofr basis were identified: - Institutional investors seeking FX hedges - Regulatory requirements impacting banks' balance sheets - US bank reserves influenced by monetary policy - Bank treasuries managing liquidity needs - Reserve managers' cash deposits - Central bank US dollar swap lines providing liquidity support [4][34]. 6. **Institutional Investor Behavior** - Euro area institutional investors increased their holdings of non-euro area debt securities from **€2.6 trillion** in December 2022 to **€3.1 trillion** in September 2025, primarily driven by US securities [43]. 7. **Regulatory Impact on FX-Sofr Basis** - Basel III regulations have increased capital requirements for banks, leading to window dressing activities that typically widen the FX-Sofr basis around key reporting dates [61][66]. 8. **Central Bank Liquidity Swap Lines** - Central bank USD liquidity swap lines help alleviate strains in cross-currency funding markets, reducing widening pressures on the FX-Sofr basis during periods of increased USD demand [101][103]. Additional Important Insights - **Market Liquidity Trends** - The FX swap market is characterized by a high concentration of turnover at the very front-end of the curve, with **68%** of turnover occurring for maturities of up to seven days [29]. - **Arbitrage Opportunities** - Dealers may exploit arbitrage opportunities between different repo markets, which can influence the FX-Sofr basis depending on the relative costs of borrowing in USD versus EUR [88][90]. - **Impact of US Bank Reserves** - Changes in US bank reserves can significantly impact the availability of USD funding, with a surplus putting tightening pressure on the FX-Sofr basis and a shortage leading to widening pressure [75][76]. - **Japanese Institutional Investor Trends** - Japanese institutional investors show weak appetite for FX-hedged foreign bond investments, primarily due to a negative JPY FX-Sofr basis [48]. - **UK Institutional Investor Behavior** - UK insurance and pension funds have seen a decline in holdings of non-UK debt securities, reflecting a cautious approach amid rising yields [53][56]. This summary encapsulates the key points discussed in the conference call, providing insights into the FX swap market's dynamics, participant behaviors, and the broader implications for global liquidity and investment strategies.

Core Viewpoint - Japan's Prime Minister, Sanae Takaichi, and the Bank of Japan have the opportunity to guide the country towards a stable growth path following a period of deflation [1] Group 1 - The leadership of Prime Minister Takaichi is crucial for Japan's economic recovery and growth strategy [1] - The Bank of Japan plays a significant role in implementing monetary policies that can support this growth trajectory [1] - The collaboration between the government and the central bank is essential for achieving long-term economic stability [1]

Core Viewpoint - The Bank of Japan should aim to anchor long-term inflation expectations around 2% to maintain market trust and manage rising interest rates [1][3]. Group 1: Inflation and Economic Outlook - Inflation in Japan is expected to moderate as cost-push factors dissipate, potentially leading to positive real wages by 2026 [2]. - If economic conditions improve, Japan's output gap may close, indicating a more optimistic economic outlook [2]. Group 2: Interest Rates and Fiscal Policy - Rising Japanese government bond yields reflect market expectations of continued interest rate hikes by the Bank of Japan, driven by persistent high food costs keeping inflation above the 2% target [4]. - The Bank of Japan raised its short-term policy rate to a 30-year high of 0.75% in December, marking a significant shift towards reducing stimulus [6]. Group 3: Debt Management - Wakatabe emphasized the importance of focusing on lowering Japan's debt-to-GDP ratio rather than ignoring the existing primary balance target [5]. - The panel, which Wakatabe is part of, will oversee the development of a new long-term fiscal blueprint expected by June [6].

Group 1 - The Bank of Japan (BOJ) will continue to raise interest rates if economic and price developments align with its forecasts, indicating a commitment to monetary policy adjustments in response to economic conditions [1][2] - Japan's economy experienced a moderate recovery last year, despite challenges such as higher U.S. tariffs impacting corporate profits [1] - The BOJ raised its policy rate to a 30-year high of 0.75% from 0.5%, marking a significant shift from decades of low borrowing costs and monetary support [3] Group 2 - Wages and prices are expected to rise moderately together, suggesting a potential for sustained economic growth through adjusted monetary support [2] - The upcoming BOJ quarterly outlook report, scheduled for January 22-23, is anticipated to provide insights into the board's perspective on inflationary pressures resulting from recent yen depreciation [4] - The yen's weakness has increased import costs and broader inflation, leading some BOJ board members to advocate for further rate hikes [4][5] Group 3 - Market expectations of additional BOJ rate hikes have resulted in increased yields, with the benchmark 10-year Japanese government bond briefly reaching a 27-year high of 2.125% [5] - Finance Minister Satsuki Katayama emphasized that Japan is at a critical juncture in transitioning to a growth-driven economy, moving away from a deflationary environment [5]

Summary of Key Points from J.P. Morgan's Global Data Watch: Asia Industry Overview - **Industry**: Chinese Export Market - **Context**: Analysis of China's export diversification post-US tariffs Core Insights 1. **Export Growth**: Despite US tariffs averaging ~32%, China's goods exports grew by 5% in 2025, consistent with the previous year's growth [1][11] 2. **Redirection of Exports**: China's direct export share to the US decreased by one-third in 2025, from 15% to 10%, leading to a redirection of exports to other markets [1][11] 3. **Broader Diversification**: The decline in US export share was offset by increases in market share across Africa, Asia, and Europe, indicating a broader diversification than previously assumed [1][11] 4. **Impact on Domestic Manufacturing**: Increased Chinese exports are creating pressures on local manufacturing sectors in Asia, evidenced by rising trade barriers on Chinese imports [1][11] 5. **ASEAN Economies**: ASEAN countries, due to strong economic ties with China, are unlikely to push back against increased Chinese imports despite the pressures on their manufacturing bases [1][11] Additional Important Points 1. **Economic Ties**: The strong economic connections between ASEAN economies and China as a source of foreign direct investment (FDI) and as an export market are highlighted [1][11] 2. **Trade Barriers**: The increase in trade barriers on Chinese imports suggests a growing concern among Asian countries regarding the impact of Chinese exports on their local industries [1][11] 3. **Long-term Trends**: The increase in exports to Asia reflects a secular rise over the last decade, with shipments to Asia now making up almost a third of China's export basket [1][11] Economic Forecasts 1. **China's GDP Forecast**: The 4Q GDP forecast for China is maintained at 3.0% quarter-on-quarter seasonally adjusted annual rate (saar) or 4.2% year-on-year (yoy) for 2025, with net exports contributing 1.4 percentage points [11][12] 2. **Fiscal Spending**: Year-to-date fiscal deposits are elevated at 2.04 trillion yuan, indicating weak fiscal spending, which may lead to higher unused funds carrying over into the next year [12][11] This summary encapsulates the key insights and implications regarding China's export dynamics and its impact on regional economies, particularly in the context of ongoing trade tensions and economic forecasts.

Last week's central bank decisions reinforced the end of the global rate-cutting trend, a view we highlighted in a prior note. On Thursday, the Bank of Japan (BOJ) raised its benchmark interest rate by 25 basis points to 0.75%, marking its highest level since 1995. ...

Can the positive momentum continue. Joining us now is Kay Okamura. He is New Burger Berman's portfolio manager for Japanese equities.And Kay, it's great to have you on the show. Given the fact that the bank of the Japan Bank of Japan has been hiking, can the equity market continue to power higher. >> Hi, thanks for having me on the show, Marine.So, let me let me break that down to a couple parts. First of all, uh we do think that the market can go higher and that's on the back of the fundamentals and the va ...