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26 March 2024

Market Round-Up

Japan has embarked on a significant monetary policy shift, as it implements its first positive interest rate since 2007. For years Japan has grappled with deflation and economic stagnation, stemming from the burst of its asset price bubble in the early 1990s. During this period, the economy saw equity prices fall by about 60% and land prices spiral downwards, all of which continued through the early 2000s. Thus, negative interest rates were implemented in 2016 to stimulate spending and investment in the economy, which penalised those that saved. However, as market sentiment has started to recover, the Bank of Japan has concluded that the economy can handle an increase to borrowing costs.

This move, alongside the Bank of Japan’s decision to abandon its yield curve control policy, represents a step in the right direction. The yield curve control policy was established in 2016, aiming to encourage spending and decrease inflation risks, without dampening returns for financial institutions. This was achieved by keeping short to medium rates low, at -0.1%, and longer-term rates higher at roughly 0%.

Together the implementation of these policies over the years has created a positive impact on the economy, as wages have seen the most significant increase since 1991. When wages rise, it often leads to heightened demand which positively impacts consumer spending and contributes to the Bank of Japan’s goal of reaching its 2% annual inflation target.

While the recent policy adjustments represent optimistic developments and stimulated growth, there is still a long course ahead. Challenges such as an ageing population, sluggish productivity growth, and high public debt, continue to pose hurdles to sustained economic expansion.

In the UK, recent housing market data signals at a more upbeat outlook for the year ahead. The surge in the number of agreed sales during the first two months of this year has captured the attention of many, as it hints at a potential resurgence in the real estate sector.

Comparing the figures to pre-pandemic levels, the increase in agreed sales is 9% higher than in 2019—a benchmark year unaffected by the turbulence of the pandemic and subsequent economic fluctuations. This surge not only underscores resilience but also hints at a renewed sense of confidence among buyers and sellers in the market.

The contrast between the current optimistic outlook and the uncertainty of the previous year is stark. In 2023, borrowers grappled with concerns over mortgage rates, inflationary pressures, and the resultant impact on housing prices. However, the landscape has since shifted, with mortgage rates experiencing a decline from the highs witnessed in 2023. This decrease in mortgage rates has the potential to make home ownership a more attainable goal for many.

For homeowners, this revival offers hope of increased property values, while for aspiring buyers, it presents newfound opportunities to step onto the property ladder. While uncertainties may linger, the recent trends in the housing market serve as a potential beacon of optimism, signalling a promising path forward for both buyers and sellers.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the investments mentioned. Investments and income arising from them can fall as well as rise in value.
Market Round-Up

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