🇯🇵 Japan's wish came true

What’s going on here?

The Bank of Japan (the BoJ) remained unfazed by inflation, keeping its interest rates firmly in the negative.

What does this mean?

Countries around the world may be lamenting rising prices, but after years spent battling economy-crushing deflation, Japan actively triggered intense measures to bring about inflation. That wish came true: inflation in the country just came in above target for the seventeenth month straight. The BoJ’s not willing to take any risks after finally getting what it wanted, so the central bank kept its short-term target interest in the negative and its longer-term ones near zero. (That’s an unusual monetary policy strategy called “yield curve control”.) And while investors were expecting some hints of a broader change in strategy, that didn’t happen. You know what they say, if it ain’t broke…

Why should I care?

For markets: Japanese grass really is greener.

Japan has struggles, sure, but investors are still much keener on the Land of the Rising Sun than most other Asian countries. After all, Japan’s macro outlook is brightening up, the country’s companies are boasting attractive valuations, and profit-plumping corporate shake-ups are in the mix. That has big names like Warren Buffett buying up hefty stakes in the country’s firms, along with hedge funds and major asset managers. So now, Japan’s stock market is sitting at the world’s top table, spurring hopes that the country may have truly turned a corner.

The bigger picture: We’re (not) all in this together.

With the Federal Reserve waxing lyrical about inflation, it’s easy to forget that not every country is fighting the same battle right now. China’s in the ring with deflation, while emerging markets that hiked rates early have managed to essentially tame their rising prices and can focus on economic support. For investors keen to diversify, that sounds like the perfect time to spread your eggs across baskets all over the world.

What’s going on here?

Activity in the eurozone’s private sector declined in September, signaling that the region’s economy is shrinking this quarter.

What does this mean?

The eurozone’s purchasing managers' index (PMI) just came out, which is essentially a report card showing how companies in Europe are doing. Well, this one was far from an A+: activity in the region slipped for the fourth month in a row, falling below the 50-mark that signals real trouble. Business was bad for both the manufacturing and services industries, signposting faltering demand across the board as rising prices continue to bite. What’s more, it was Germany – usually the eurozone’s workhorse – and France that really dragged down the average.

Why should I care?

For markets: What goes up might need to come down.

Most of the world’s central banks have temporarily paused their interest rate-hiking campaigns, concerned that an overly aggressive strategy could pull economies into recessions. And because this data is a worrying indicator for Europe’s economy, it suggests that the European Central Bank may need to hold off hikes for longer or even cut rates down a tad. Earlier this year, the central bank predicted that the region’s economy would manage to grow a tiny – but needed – 0.1% this quarter, but that’s no guarantee. No wonder, then, that the market’s already betting on economy-buoying lower rates.

The bigger picture: You can’t escape that easily.

The UK isn’t included in those European stats, but the country’s pain is just the same. The British version of that index dropped slightly in September from the month before, staying below that dreaded 50-mark. Plus, the country’s companies are slicing jobs at the fastest rate in over a decade. Taken together, that probably reveals that the UK’s interest rate hikes have started gnawing at the economy, and that explains why the Bank of England decided to keep interest rates steady at 5.25% on Thursday.