Macro Monday 59~Japan Interest Rate Hikes Often Lead Recessions Macro Monday 59
Japan Interest Rate Hikes Often Lead Recessions
Apologies for the late release this week, I was ill yesterday and I am slowly making a recovery. This week I am keeping it brief however the chart really will speak for itself.
If you follow me on Trading view, you can revisit this chart at any time and press play to get the up to date data and see if we have hit any recessionary timeline trigger levels. They are very handy to have at a glance.
The chart illustrates the Japan central banks Interest rate history and overlays the last 7 recessions. A few key patterns and findings are evident from the chart which I will summarize below.
The Chart - ECONOMICS:JPINTR
SUBJECT CHART
◻️ 5 of the last 7 recessions were preceded directly by Japan Interest rate hikes.
- Arguably it is 6 out of 7 if you include the 1980 recession with the 1981 recession (which happened as rates were still declining from the original increase).
⌛️The average length of time from the initial hike to recession was 11.6 months.
- This would be Jan/Feb 2025 based on the initiation of Japan’s rate increases in Feb/Mar 2024. If you read my material you’ll know that the date of Jan 2025 has repeatedly arisen as a concerning date on multiple charts. This does not guarantee anything other than historical time patterns on multiple charts seem to point roughly towards Jan 2025 as a month of concern.
◻️ The minimum time frame from initial hike to recession was 8 months (Oct 2024) and the maximum time frame 18 months (Aug 2025). This can be our window of concern.
◻️ Its important to note that the rates have remained elevated or increasing for longer than the above timelines outset. In this chart we are only looking at the the first rate increase to recession initiation timeline. We are doing this establish a risk time frame. In the event rates remain elevated into month 11.6 (the average timeframe) we will know we are entering dangerous territory (Jan 2025). Likewise we could go a long as 18 months which is the maximum timeframe. This is all dependent on rates remaining elevated or increasing. A reduction in rates could deter or remove the risk timelines discussed.
What happens next is dependent on what the Japan Central bank does. History suggests when they start to increase rates its for a minimum of 6 - 8 months (Sept - Oct 2024), lets see if they pass these months and start to move towards Jan 2025 (the average time line from rate increase initiation to recession). This is a move into higher risk territory.
I want to add last week summary as a reminder that multiple other charts are lining up to suggest we may have volatility in the coming 6 months:
Macro Monday 58
Recession Charts Worth Watching
What to watch for in coming weeks and months?
▫️ If both the 10 - 2 year treasury yield spread and the U.S. Unemployment Rate continue in their upwards trajectory in coming weeks and months, this is a significant risk off signal and recession imminent warning.
▫️ Since 1999 the Federal reserve interest pauses have averaged at 11 months. July 2024 is the 11th month. This suggests rate cuts are imminent.
▫️ The 2 year bond yield which provides a lead on interest rate direction is suggesting that rates are set to decline in the immediate future and that the Fed might lagging in their rate cuts. Furthermore, rate cuts are anticipated in Sept 2024 by market participant's.
▫️ Finally, rate cuts should signal significant concern as most are followed immediately by recession or followed by a recession within 2 to 6 months of the initial cut. Yet the market appears to be calling out for this. This is high risk territory. Combine this with a treasury yield curve rising above the 0 level and an increasing U.S. unemployment rate and things look increasingly concerning.
(for all of the above charts see last weeks Macro Monday).
____________________________________
As always you can log onto my Trading View press play on the chart to see where we are, and get an visual update immediately on if we are at min, avg or max recessionary levels.
PUKA
