Daily Commentary

MarketMinder’s View: This article is kind of sign-of-the-times-y, but the monetary policy implications are pretty overrated. The Bank of Japan (BoJ) has long targeted 2% y/y inflation, in keeping with many other central banks worldwide. Of course, policymakers initially set this rate way above prevailing inflation, as the country spent many years trying to find ways to counter flattish or falling prices, which many (wrongly) thought were a key headwind to Japanese domestic demand. They thought it would demonstrate some kind of commitment to keeping prices stable and slow-rising and break an alleged “deflationary mindset” that prevailed among Japanese consumers. It didn’t really achieve much of anything. But today, inflation has been running above the 2% target after the BoJ ballooned money supply during COVID lockdowns. And the political winds have shifted. Here the opposition Constitutional Democratic Party of Japan (CDPJ) is pushing for revision of the BoJ’s inflation target … to zero. Now, that is all fine and dandy and understandable in spirit, given the country’s overshooting its targeted rate since 2022. Whether this would actually give the BoJ leeway to hike rates further is an open question, though. If the bank wanted to, it could hike today on above-target inflation logic (the consumer price index rose 3.5% y/y in April, the latest figure!). But they haven’t hiked rates since February. Why? The target doesn’t dictate policymakers’ interpretation of the data. Raising a target doesn’t meant the interpretation shifts, either.

MarketMinder’s View: This article documents Moody’s analysis of the risks involved with Wall Street’s emerging push to expand the use of private assets by individual investors using instruments like pooled funds that mix and commingle public and private investments. But rather than focus on the risks to the individuals—which are notable, in our view, and worth very carefully considering—it adds a look from the perspective of the financial system. For example, the funds in question will likely have to deploy cash raised faster than the usual private fund, as there is no similar “lock up” period of years. That can mean stretching for deals that turn out to be poor. Additionally, the liquidity the funds add to this space may, “…make private markets more similar to public ones, reducing the ‘illiquidity premium,’ or the higher returns private funds can charge for holding assets that hardly ever trade and don’t require public financial reporting.” There is also the risk of a mismatch between the assets’ underlying illiquidity and the funds’ liquidity, which is something of a double-edged sword. Instruments like ETFs can create liquidity of their own, in the sense a sale of shares from one party to another may not require redeeming any underlying assets. But if we reach a point where redemptions spike, illiquid underlying assets may heap pressure on the issuers—and could require freezing redemptions for a period, which has happened a couple of times in Europe in recent years. For more on this, see today’s commentary, “Inside Wall Street’s Private Equity Push.”

MarketMinder’s View: This touches on politics briefly in the course of discussing the World Bank’s updated 2025 global economic growth forecast, so please note we favor no politician nor any party—our interest here is more the growth outlook than the alleged causal factors. Citing tariffs, the World Bank ratcheted down its global growth forecast by -0.4 percentage point to 2.3%—which would represent a slowdown in growth from 2024’s 2.8%. Furthermore, the bank cut the US growth outlook more, from a 2.3% forecast this January to 1.4% in its semiannual update. That all seems logical and fine to us—it is quite possible the tariffs and uncertainty surrounding their rollout has slowed growth, and this likely hurts the US more than other nations. But markets largely already told you that, falling sharply as the plans rolled out and with the US significantly lagging non-US stocks this year. So in essence, the World Bank is really telling you what markets already showed. The forecast is perhaps a reflection of and influence on sentiment generally, but that is about it.