Japan – Takaichi consolidates power, fiscal unleashed
Last Sunday, the LDP and Takaichi secured 316 of the 465 seats in the Lower House and, together with her coalition, now holds the two-thirds “super-majority” needed to override any rejection in the upper house. Takaichi is therefore in a historically strong position, and her political gamble has clearly paid off, giving her significant leverage to push further her proactive fiscal agenda. Markets reacted accordingly, with the Nikkei 225 opening around 5% higher, while the JPY was slightly stronger and rates moved modestly higher.
BoE – Dovish guidance, rising political noise
Last Thursday the BoE left rates unchanged, as expected. The MPC surprised the market with a dovish tone and a 5–4 vote split. Governor Bailey again acted as the swing voter, and his rhetoric emphasized a dovish bias heading into the March meeting, with markets now pricing roughly a 70% probability of a cut. The Agents’ survey on wage expectations came in at 3.4%, reinforcing confidence that the disinflation process is continuing. The BoE’s communication appeared to place greater weight on models and projections than on incoming data. Front-end rates reacted by moving around 10 basis points lower and the pound weakened. The main source of uncertainty remains political, with mounting pressure on Starmer and rising risks of internal fragmentation within the Labour Party, even ahead of the May local elections.
ECB – The status quo continues
Last Thursday, the ECB confirmed its current policy stance, with no surprises either in the statement or in Lagarde’s press conference, where she reiterated the meeting-by-meeting, data-dependent approach. Interestingly, when asked about the strength of the euro, Lagarde reiterated that the ECB does not target the exchange rate. A stronger currency could, in principle, lower the bar for cuts by adding disinflationary pressure, although recent USD moves remain smaller than those seen last year.
CEE – Winds of change?
Our research team visited Central and Eastern Europe last week and the overall picture remains one of near-immaculate disinflation alongside resilient growth, particularly in Poland and the Czech Republic, where stronger currencies continue to push goods inflation lower. In Hungary, attention is focused on the parliamentary elections on April 12. For the first time in years, Orban is facing a meaningful challenge: the opposition party Tisza, led by Peter Magyar, is leading by more than 10% in some independent polls, while Fidesz appears increasingly under pressure. Tisza’s agenda is clearly pro-European, aiming to unlock frozen EU funds and outline a medium-term path toward euro adoption, while also committing to reforms to address systemic corruption. Although the electoral system still favours Fidesz, the vote is shaping up as a referendum on Orbán and Hungary’s relationship with Europe, potentially marking the beginning of a new political chapter.
Algebris Investments’ Global Credit Team
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