BoJ: Negative to positive interest rates

Ueda Man association with the BOJ dates to 1998 or 26 years. Since 1980 and graduation from MIT with a PHD in Economics, Ueda Man spent 44 years of his life teaching at Universities. Ueda Man's affiliation with Economics dates to 1975 upon graduation with a Master's degree in Economics from the University of Tokyo.

The question of the day is how and why will the BOJ leave negative interest rates. Since last August, the BOJ announced 2 themes. The first to raise interest rates to -0.8 or 0.2. The second theme refers to leave negative interest rates.

The 5 year chart above covers 0.00 to -0.08 or 0.92. Most importantly, the 0.07 point range trades from  -0.01 to -0.08 or 0.99 to 0.92. Negative rates must convert to positive numbers.

The current top is located at - 0.01 or 0.99. BOJ interest rates has been trading at the 0.99 to 0.98 top since 2020. Negative to positive is located at the 0.00 line. Negative to positive requires a move from 0.00 to 0.01 to offer an interest rate at 1.01.

A proposed move from negative to positive means the bottom at -0.08 or 0.92 must travel by lower negatives. For example, - 0.08 at 0.92 must next trade to -0.07 at 0.93, -0.06 at 0.94, -0.05 to 0.95, -0.04 to 0.96, -0.03 to 0.97, -0.02 to 0.98, -0.01 to 0.99.

The proposed move to positive interest rates so far only covered Call rates and Call rates represent one set of interest rates. Tona rates must be addressed as well because Tona rates trade at different times to Call rates within a 24 hour period.

Tona rates trade from 8 PM EST to 4 AM EST then Call rates trade from 4 AM EST to 8PM EST. Overall, Call Rates trade 3 rates and 3 rates for Tona but Tona trades 30, 90 and 180 day averages and the Tona Index. Tona rates trade longer durations than overnight Call rates and a massive difference to Call rates.

Tona rates is the source for OIS rates. Take the 30 day and 90 day rates and subtract by headline for OIS.

Tona rates

Tona rates trade from 0.97 to 0.99 and the Index at 99.

30 day = -0.00907 or 0.99. The 90 day = -0.01342 or 0.98. The 180 day = -0.02430 or 0.97. The Tona Index trades 99.73 and converted = 100.73.

The move to positive rates begins at 0.00 then 0.01 and 0.02 to equate 1.01 and 1.02.

With a move to positive rates, USD/JPY and JPY cross pairs such as vital CHF/JPY must reassess for Export purposes as the reason for USD/JPY existence in markets is to generate revenue by Exports. More importantly is the assessment to contain USD/JPY moves and volatility.

An adjustment to positive rates will see a massive USD/JPY move.

The BOJ shares a close and tight relationship with Japan’s businesses. Next question is what is the affect to the Nikkei and stock prices on a shift to positive rates.

Despite the close proximity to positive rates by a 0.01 and 0.02 move, the change is enormous and requires time to study the complete Japanese system from economic releases, to JPY, to banks, stock markets, exports.

My assessment is no change to positive interest rates anytime soon and not for 2024. The BOJ and Japanese are far to careful and cautious to allow such a move without a complete study.

The 2nd proposal from Sinichi in August is to raise to -0.8 or 0.2 from – 0.1 or 0.9. Current bottom rates would travel higher to -0.09 = 0.91, -0.10 = 0.90, -0.11 = 0.89, -0.12 = 0.88, -0.13 = 0.87, -0.14 = 0.86.

An adjustment by change to another negative rate would nullify the above chart as irrelevant.

Then the overall question is why change a system that held the BOJ, Japan and USD/JPY in good standing and when the complete economic, market and interest rate system is well known to the finest details.