Core Insights - The Bank of Japan's policy must consider both short-term and long-term impacts on economic activity, prices, financial markets, and the financial system [1] - The current financial conditions remain accommodative, which will continue to stimulate consumption and investment [1] - Inflation expectations have been steadily rising over the past few years, influenced by soaring food prices [1] Group 1 - The actual interest rates in Japan are still at low levels [1] - The Bank of Japan should make policy judgments based on available data and information at each point in time [1] - There is a need to discuss the optimal size and structure of the balance sheet from both asset and liability perspectives [1] Group 2 - As of October, the latest forecasts indicate that the risks to economic activity for the fiscal year 2025 are balanced, while the risks for fiscal year 2026 are skewed to the downside [1] - The Bank of Japan will consider corporate wage and pricing behavior, as well as exchange rates and import price trends, when assessing price risks [1]

Core Viewpoint - The Federal Reserve may soon consider expanding its securities holdings to maintain sufficient reserves in the banking system, indicating a shift towards a new phase of liquidity support after two years of balance sheet reduction [1][3]. Group 1: Federal Reserve Actions - John Williams, President of the New York Federal Reserve, stated that the potential bond purchases would be a natural step in executing a strategy for sufficient reserves, not a change in policy stance [3]. - Since the initiation of balance sheet reduction in June 2022, the Federal Reserve's balance sheet has decreased by $2.2 trillion, reducing its GDP ratio from a peak of 35% to approximately 21%, making the timing for halting the reduction more appropriate [1]. Group 2: Market Implications - Financial institutions have increasingly utilized repurchase agreement facilities to address short-term funding pressures since October [1]. - The Markit iBoxx index for Chinese dollar bonds showed a 0.1% decline in returns as of October 31, with investment-grade bond returns also down by 0.1%, while high-yield bond returns remained unchanged [1].

Core Viewpoint - The Federal Reserve is transitioning from a "preventive rate cut" approach to a "wait-and-see" stance, leading to increased uncertainty in short-term policy paths [1] Group 1: Federal Reserve's Rate Decisions - The Federal Reserve cut rates by 25 basis points to a range of 3.75%-4.00% during the October meeting, amidst a complex backdrop due to the U.S. government shutdown affecting key employment data [2] - The decision reflects a proactive approach to mitigate potential job market downturns, despite stable private sector employment indicators [2][3] - Internal divisions within the Federal Reserve are growing, with some members advocating for more aggressive cuts while others suggest pausing [3] Group 2: Economic Indicators and Market Reactions - The market's expectation for a December rate cut has decreased from 82.4% to 63.8% following the October meeting, indicating a shift in sentiment [1] - The upcoming December decision will heavily depend on employment and inflation data post-government shutdown, with a focus on whether job market indicators show significant improvement [1][3] - Recent easing of U.S.-China trade tensions may alleviate inflationary pressures from tariffs, presenting a potential positive factor for the economy [3] Group 3: Monetary Policy and Market Conditions - The Federal Reserve announced it will stop balance sheet reduction starting December 1, as liquidity tightening signals have emerged in the U.S. money market [4] - Since the initiation of balance sheet reduction in June 2022, the Fed's balance sheet has contracted by $2.2 trillion, reducing its GDP ratio from 35% to approximately 21% [4] - The dollar index has shown signs of a rebound, and with the Fed's hawkish signals, market volatility risks are expected to increase, potentially impacting metal prices and emerging market assets [5]

Core Viewpoint - The Bank of Japan is accelerating plans to reduce its substantial ETF holdings, with a gradual market sale of these risk assets being the primary strategy. The timing of this policy initiation remains uncertain [1][2]. Group 1: ETF Reduction Strategy - The internal strategy of the Bank of Japan will focus on "phased, small-batch, gradual sales" rather than alternative methods like transferring to state-owned entities [2]. - The Bank of Japan's experience from 2002 to 2010, where it sold bank stocks, will inform its approach to selling ETFs, aiming to avoid market turmoil through long-term, small-scale transactions [2]. - Since 2010, the Bank of Japan has accumulated ETF holdings amounting to 35 trillion yen (approximately 251 billion USD), which now faces pressure for market-driven "digestion" [2]. Group 2: Necessity of ETF Sales - Selling ETFs is viewed as a crucial step for the current governor, Ueda Kazuo, to conclude the large-scale monetary stimulus initiated by his predecessor [3]. - Unlike government bonds that automatically drop off the balance sheet upon maturity, ETFs do not have a maturity date, necessitating active sales for balance sheet normalization [3]. - The Bank of Japan has maintained a cautious stance regarding the timing and method of ETF sales, emphasizing the need for a "proper" price to avoid losses or significant market disruption [3]. Group 3: Timing and Political Factors - The timing of the ETF sale remains a significant issue, with no consensus reached within the Bank of Japan on when to proceed [4]. - Analysts suggest that the Bank of Japan is unlikely to make a decision on ETF sales in the upcoming policy meeting, although comments may be made afterward [4]. - Political uncertainty following the resignation of Prime Minister Kishida Fumio has created a challenging environment for the Bank of Japan to act, as the new government's policy direction is still unclear [5].

Core Viewpoint - The Bank of Japan must steadily advance the normalization of its balance sheet, although this process may take some time [1] Group 1 - The statement emphasizes the importance of a gradual approach to balance sheet normalization by the Bank of Japan [1]