On Wednesday the European Central Bank released its quarterly Financial Stability Review.
In it the Bank warned that policy normalisation by the Bank of Japan could test the resilience of global bond markets.
- "Inflation in Japan has been increasing over the past year, leading market participants to expect the Bank of Japan to start normalising its monetary policy,"
- If Japan normalises policy, this could rechannel investments by Japanese investors who have a large footprint in global financial markets, the ECB warned. "A rapid decline in rate differentials and increased exchange rate volatility could reduce the attractiveness of their carry trades,"
- "A shift away from the low interest rate environment in Japan could test the resilience of global bond markets,"
- added that higher rates at home could lead to a repatriation of vast sums held by Japanese investors overseas.
Its unusual for the ECB to make such pointed remarks about another major central bank.
Reuters had this overnight for more.
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Anyway, Bloomberg is posting a report on the ECB comments.
Huh ... is this body language instructive?