Core Viewpoint - Inflation in Japan's capital has decreased below the central bank's 2% target for the first time in over a year, but this slowdown is not expected to halt further interest rate hikes [1] Group 1 - The inflation rate in Tokyo has cooled, indicating a potential shift in economic conditions [1] - The central bank's target of 2% inflation has not been met, suggesting a change in the inflationary environment [1] - Despite the cooling inflation, the central bank is likely to continue with interest rate increases, reflecting a commitment to monetary policy tightening [1]

Core Insights - Inflation continues to pose challenges for the central bank, indicating that further interest rate hikes are likely in the upcoming months [1] Group 1 - The central bank is facing persistent inflation issues [1] - An increase in interest rates is anticipated to occur repeatedly in the near future [1]

Core Insights - Federal Reserve policymakers largely agreed to maintain interest rates, with a 10-2 vote to keep the federal funds rate in the range of 3.5% to 3.75% despite some calls for cuts [3][8] - The FOMC minutes indicated that several policymakers supported the inclusion of language suggesting potential future rate hikes if inflation remains high [2][4] - Inflation continues to exceed the Fed's 2% target, with the personal consumption expenditures (PCE) index showing elevated levels, prompting caution against further rate cuts [3][10] Interest Rate Decisions - The FOMC's decision reflects a consensus on holding rates steady while monitoring inflation trends, with some members advocating for a two-sided approach to future rate adjustments [4][7] - Policymakers expressed that downward adjustments to the federal funds rate could be appropriate if inflation aligns with their expectations [7] Inflation Trends - The PCE inflation rate was reported at 2.8% in November, matching its highest level since October 2023, while core PCE also stood at 2.8% [11] - Fed Chair Jerome Powell noted that core PCE inflation would be slightly above 2% if not for tariff impacts on goods prices [12]

Economic Indicators - The dollar index (DXY00) is down -0.04%, influenced by a smaller-than-expected decline in US jobless claims and a larger-than-expected drop in January existing home sales [1] - US weekly initial unemployment claims decreased by -5,000 to 227,000, indicating a slightly weaker labor market than the expected 223,000 [2] - January existing home sales fell -8.4% month-over-month to a 16-month low of 3.91 million, below expectations of 4.5 million [3] Currency Movements - The Chinese yuan has strengthened, reaching a new 2.5-year high, which is putting additional pressure on the dollar [1] - The euro (EUR/USD) is up by +0.09% amid mild dollar weakness, although gains are limited by a decline in German bund yields [5] - The yen (USD/JPY) is down by -0.24%, with the yen reaching a 2-week high against the dollar, supported by lower T-note yields [6] Interest Rate Expectations - Swaps markets are pricing in a 6% chance of a -25 basis point rate cut at the next Federal Open Market Committee (FOMC) meeting on March 17-18 [4] - The FOMC is expected to cut interest rates by approximately -50 basis points in 2026, while the Bank of Japan (BOJ) is anticipated to raise rates by +25 basis points in the same year [4] - There is a 3% chance of a -25 basis point rate cut by the European Central Bank (ECB) at its next policy meeting on March 19 [5]

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]

Economic Indicators - The US October S&P Case-Shiller composite-20 home price index increased by +0.3% month-over-month and +1.3% year-over-year, surpassing expectations of +0.1% month-over-month and +1.1% year-over-year [2] - The US December MNI Chicago PMI rose by +9.2 to 43.5, exceeding expectations of 40.0 [3] Currency Market Dynamics - The dollar index (DXY00) is up by +0.09%, supported by positive US economic news and higher T-note yields, which have strengthened the dollar's interest rate differentials [1] - The dollar is facing pressure due to concerns about the Federal Reserve's independence following President Trump's comments about potentially firing Fed Chair Powell [1] - The dollar is also under pressure as the Fed has increased liquidity in the financial system by purchasing $40 billion a month in T-bills [4] Eurozone Economic Factors - The EUR/USD is down by -0.13%, influenced by the dollar's strength and ongoing concerns regarding the Russian-Ukrainian war, which has not seen any breakthroughs in recent talks [5] - Spain's December core CPI rose by +2.6% year-over-year, stronger than the expected +2.5% year-over-year, which is a hawkish factor for ECB policy [6]

Core Insights - RH, formerly known as Restoration Hardware, has faced significant fluctuations in its business and stock performance over the years, particularly influenced by macroeconomic factors [1][2]. Company Strategy and Performance - CEO Gary Freeman initially proposed ambitious expansion plans to transform RH into a comprehensive lifestyle brand, including ventures into restaurants, hotels, and real estate developments [2]. - Despite the downturn in the housing market due to the Federal Reserve's rate hikes in 2022, RH continued to expand its core luxury homegoods business, accumulating debt in the process [3]. - The stock price peaked in August 2021 at around $700, driven by investor enthusiasm for the company's growth potential [2]. Economic Environment - A year ago, there was optimism for a recovery in the housing market as the Fed began cutting interest rates, but this was short-lived due to subsequent market reactions and tariff policies from the Trump administration that negatively impacted manufacturing operations in Southeast Asia [4].

Group 1 - The number of corporate bankruptcies in 2025 is on track to reach 792, the highest level since 2010, with 655 bankruptcies reported in the first 10 months of the year [2][7] - The industrials sector is experiencing the most bankruptcies, followed by the consumer discretionary sector, with notable filings including Nikola, Spirit Airlines, and Claire's [3][7] - Despite the rise in bankruptcies, the levels are still significantly lower than during the Great Recession, where bankruptcies peaked at 5,335 in 2008 [4][5] Group 2 - Bankruptcies were at a low of 372 in 2022 before increasing in 2023 due to rising borrowing costs from the Federal Reserve's interest rate hikes [5] - There are two main types of bankruptcy filings: Chapter 7 liquidation, which indicates a company will cease operations, and Chapter 11 reorganization [6]

Core Viewpoint - The Bank of Japan (BOJ) should maintain a loose monetary policy and proceed very gradually with interest rate increases due to global trade uncertainties affecting the economic outlook [1][2][3]. Economic Performance - Japan's economy has outperformed expectations this year, driven by strong consumption and exports, aided by a trade deal with the U.S. that has reduced some uncertainties [1]. - The BOJ raised its key interest rate to 0.5% in January, believing the country was close to achieving a sustainable 2% inflation target [4]. Risks to Growth - There are significant downside risks to growth stemming from ongoing uncertainties regarding U.S.-China trade negotiations and potential reversals in global financial conditions [2]. - Concerns exist about whether domestic wages will continue to rise sufficiently to support consumption and maintain inflation around the BOJ's target [2]. Monetary Policy Approach - A gradual approach to monetary policy is deemed crucial given the current uncertainties, with a focus on analyzing incoming data before making further rate adjustments [3]. - The BOJ's next monetary policy meeting is scheduled for October 29-30, with additional meetings planned for December and January [4]. Inflation and Economic Conditions - BOJ Governor Kazuo Ueda has indicated a cautious stance on rate hikes, particularly in light of the economic impact of U.S. tariffs and persistent food inflation driven by a weak yen [5]. - The risks to the price outlook are considered balanced, with limited pass-through effects of the weak yen on inflation [6]. Political Landscape - Political uncertainty is contributing to the fragile economic environment, highlighted by the recent challenges faced by ruling party leader Sanae Takaichi in her bid to become Japan's first female prime minister [6].