Happy Sunday and welcome to our flagship editorial!

What a bizarre week it has been in global macro. The outlook for the economy, rates, fx and other assets apparently never fails to surprise!

We have thankfully made very decent returns through a tough trading week as some of our cyclical rotations had a tremendous start to the week before taking a minor hit when the change of the yield curve regime in Japan was announced.

First things first. The decision to move the cap in the 10yr point of the Japanese Government Bond (JGB) curve from 0.5% to 1.0% was a big surprise to many timing-wise. Market participants had discussed this move from the Bank of Japan in length over the past months, but most people seemed to conclude that it was a decision for later. We have continuously flagged this risk through the past quarters, but also highlighted how such a decision had to come as a surprise to work its magic. And so it was (a surprise) – at least almost. 

Hilariously, the regime shift was already leaked to Nikkei a day ahead of the actual decision, which is worthy of an award for the “banana republic of the week” to Japan and its monetary authorities.

Chart 1: USDJPY still looks too low despite the recent move by the BoJ