From Wednesday noon to Thursday night, the "most exciting 32 hours" in the global market!

This week, the central banks of the United States, Japan, and the United Kingdom will successively hold monetary policy meetings, ushering in the "most stimulating 32 hours" in the global financial markets.

On Wednesday morning, the Bank of Japan will take the stage first, possibly raising interest rates while reducing its balance sheet, becoming the highlight of the week;

Next, in the early hours of Thursday, the Federal Reserve will announce the highly anticipated interest rate decision, followed by a press conference by Powell to announce the monetary policy, with the market generally expecting a signal for a rate cut to prepare for actions in September;

Finally, on Thursday evening, the Bank of England will take the stage, possibly cutting interest rates for the first time in four years, with the market expecting a rate cut of 25 basis points.

In just 32 hours, the results of the three major interest rate decisions will be released, stirring up global stock, bond, and currency markets, adding turmoil to the already unsettled markets.

Recently, the Japanese Yen and the British Pound have surged, while the decline in U.S. short-term Treasury yields, due to uncertain policy and economic growth prospects, has left multiple markets tense and uneasy at the close of last week.

Bank of Japan Takes the Stage First

The decision of the Bank of Japan is highly anticipated, potentially stealing the spotlight from the Federal Reserve.

Japanese authorities have indicated that this meeting will announce details of reducing the monthly bond purchase plan, with the market generally expecting the purchase amount to decrease from 60 trillion yen to 50 trillion yen, eventually halving the purchase amount over two years.

There is also a possibility of a rate hike, but only about 30% of economists see this as the base case scenario.

The latest economic data in Japan shows accelerating inflation but weak consumption, increasing the uncertainty of the decision. The yen to dollar exchange rate has appreciated by about 5% since July 11, reflecting market expectations of policy tightening. However, expectations for a rate hike have fluctuated significantly, soaring from less than 40% last week to nearly 90%, then falling back to around 50%, highlighting the market's confusion.

As a popular carry trade tool, the recent strength of the yen has affected global assets, with Japanese stocks pausing their rise, offshore renminbi rising to a high in over a month, and currencies such as the Australian Dollar and Mexican Peso being impacted.

Analysts believe that if the rate hike falls through, especially if the central bank's bond purchase plan is not reduced as expected, shorting the yen for arbitrage trading "may make a comeback," with intense volatility potentially quickly spreading to global markets. If the Bank of Japan remains unchanged, it may catch yen bulls off guard; but if the Federal Reserve subsequently signals an accelerated rate cut, yen bears will also face risks.

Charu Chanana, Head of Foreign Exchange Strategy at Shengbao Capital Markets, said:

Despite the enormous two-way risks in this week's trend, I remain bearish on the yen. For a fundamentally dovish central bank, expecting the Bank of Japan to raise rates and adjust its bond purchase plan in one meeting seems somewhat far-fetched.

Highly Anticipated Federal Reserve Decision

Investors will closely watch the Federal Reserve's policy statement and Chairman Powell's speech for clues supporting the first rate cut in September.

Economists and swap traders generally expect at least two 25 basis point rate cuts this year, with the Federal Reserve's benchmark rate currently in the range of 5.25% to 5.5%.

Recent comments from Federal Reserve officials frequently mention cooling labor markets and falling inflation, suggesting they believe the conditions for a rate cut are ripening. Chief International Economist James Knightley of ING Group stated:

The upcoming FOMC meeting will lay the groundwork for a rate cut in September, as the Federal Reserve prepares to shift its policy from restrictive to neutral.

Some market observers have proposed a more positive easing policy than currently expected, including former New York Fed President Dudley and economist Adrian. Dudley suggested that the Fed should consider a rate cut this week, while Adrian warned that maintaining high rates for a long time would be a "policy mistake."

U.S. Treasury bonds are set to rise for the third consecutive month, the first time since mid-2021. Confidence in a rate cut continues to strengthen, driving the Bloomberg U.S. Treasury Index to a two-year high this month. As bets on loose monetary policy are about to be implemented, the 2/10-year Treasury yield spread is narrowing. Last week, the U.S. stock market also experienced significant volatility, with earnings reports raising doubts about consumer confidence.

Bank of England May See First Rate Cut

The Bank of England is expected to make its first rate cut in four years, but the market remains divided.

Although the inflation rate has dropped from double digits a year ago to the 2% target, the unemployment rate has risen, but service sector price growth remains strong, and the economy has rebounded from a slight recession. The minimum wage was raised by 10% in April, and the new Labour government's plan to increase public sector wages brings inflation risks.

Since the July election, three hawks on the Monetary Policy Committee have opposed loose policy, with only one of the two doves taking the opposite view.

Regardless of the outcome, this decision will have an impact on bonds and the pound. As of last Friday, the probability in the swap market of a 25 basis point rate cut this week was about 50%, with the likelihood of two rate cuts this year almost certain, and economists widely believe that the Bank of England will take action.

The pound has been the best performer among G10 currencies this year, but a rate cut may weaken its attractiveness for arbitrage trading. Large banks and investment institutions such as JP Morgan and Orient Capital expect the pound to rise further against the dollar to 1.35, an increase of nearly 5% from current levels