🇯🇵 Japan one-eightied on interest rates

What’s going on here?

The Bank of Japan (BoJ) vowed to keep interest rates steady, eager to soothe the market’s hangover from last month’s hike.

What does this mean?

The BoJ suggested that any further rate hikes are off the table for now, a one-eighty from last week when the central bank claimed it was ready to tighten the screws even further. So confident that they won’t be blindsided again, investors have warmed back up to Japanese stocks, helping them recover some of the 20% value they lost between Thursday and Monday. And without the promise of currency-boosting rate hikes, the Japanese yen weakened against the dollar, too.

Why should I care?

Zooming out: Peer pressure is a workplace hazard.

Rate decisions usually come on the back of economic data, not market whims or political pressure. But the BoJ’s not the only central bank feeling a nudge in the side from angsty traders. The latest weaker-than-expected US jobs data was one factor behind the sell-off, with investors wary that the Federal Reserve (Fed) had missed the sweet spot on rate cuts. Now, the central bank could have responded with an impromptu trimming to ward off fears of a recession. But the Fed’s tasked with balancing inflation and the economy – not the stock market, which isn’t a foolproof recession indicator. Even then, an emergency cut may have done more harm than good, sending a panicked signal that the central bank was caught unawares.

The bigger picture: When life gives you lemons, learn to tolerate lemons.

No matter how central banks play their cards, it seems inevitable that major stock markets will be pushed and pulled in both directions this year. Global elections and boiling-point international relations have the potential to rock stocks at any point, not least when there are potential recessions in the background. Although, as the last week has shown, market fluctuations aren’t always portfolio killers. In fact, they can often be an opportunity for investors to shop around for less.

What’s going on here?

British house prices took off in July, rising at their fastest rate since January.

What does this mean?

UK house prices were 0.8% higher in July than June, a welcome change after three relatively flat months and more than the expected 0.3% rise. That’s down to potential buyers feeling encouraged by the recent fall in mortgage rates, as well as the Bank of England’s interest rate cut last week – especially as it looks increasingly likely that the country will see two more cuts this year. But making a house a home still isn’t cheap: the average first-time buyer spends around 37% of their pay on mortgage payments, up from around 28% back before the pandemic.

Why should I care?

For markets: Cheap as chips.

British stocks had been out of fashion for months, with traders sidelining them despite their relatively cheap prices. Then only recently, hopes of increased political stability had brought institutional investors around, and the UK’s finest were finally coasting upward – until the recent market panic, that is. Now, plenty of investors could see this as a chance to nab a bargain. After all, British inflation seems tame, rate cuts are underway, and the economy’s plodding along. Plus, lower rates make storing investable cash in savings accounts that touch less lucrative.

For you personally: Two sides to every story…

Lower interest rates can be a double-edged sword for housing. They make it cheaper to borrow money, like a mortgage. But because that brings sidelined buyers out of their rented flats, the newfound attention can push house prices higher. In fact, a lack of affordable housing is a serious issue in the UK, so much so that the newly elected government’s plans include policies to build new homes. If that pans out, house prices might be kept at a manageable level – but that relies on political promises coming good.