BoJ surprises with negative rates to revive inflation

The surprise move layered a three‑tier system on excess reserves, penalizing marginal balances while shielding core liquidity. Equities initially rallied before bank shares lagged on NIM concerns. JGB yields moved deeper negative on parts of the curve as the market reassessed term premium under an expanded toolkit.

FX markets saw rapid yen swings as policy surprise met global risk‑off. The credibility of incremental easing was debated, with expectations coalescing around future yield‑curve control rather than deeper negatives. Inflation expectations edged up only modestly, leaving wage dynamics central to durable reflation.

We assessed transmission efficacy, noting balance sheet channels and portfolio rebalancing effects. Under heavy BoJ presence, relative value opportunities in JGBs were limited, steering us toward diversified global carry in credit and securitized exposures. Bank capital and AT1 pricing were monitored for stress scenarios.

Client portfolios maintained neutral JGB duration and incremental overseas credit. We paired Japanese equity cyclical exposure with defensive cash flows and increased options around JPY to manage two‑way risk. Risk controls prioritized liquidity given potential policy recalibration toward yield‑curve tools later that year.