The Fed’s not the only game in town this week.

On Friday, the Bank of Japan will deliver its first policy decision since July, when a second rate hike in four months and hawkish forward guidance destabilized an already wobbly macro-market Jenga tower.

The BoJ won’t hike again this week. That much is certain. But Kazuo Ueda needs to walk a fine line with any forward guidance. His influential deputy Shinichi Uchida offered a mea culpa of sorts on August 7, 48 hours after Japanese equities suffered what might as well have been their worst single-session selloff ever.

And yet, earlier this month, in documents prepared for a government panel, Ueda indicated the bank does, in fact, plan to keep raising rates. Assuming, of course, that growth and inflation evolve in line with their forecasts.

There are two considerations for the BoJ vis-à-vis markets. One is obviously the yen. An overtly dovish Fed risks another blast of yen strength, and thereby more carry unwinds. The BoJ will be cognizant of that on Friday. If the Fed back-foots the dollar, Ueda won’t want a pile on.

The other consideration for the BoJ is domestic equities, which they own a lot of. Japanese stocks rebounded sharply from the historic meltdown on August 5, but vol’s still elevated. And as the figure plainly shows, the yen’s just looking for an excuse.

Some contend that bouts of carry unwind are still rippling across global markets. According to a handful of recognizable names, a Fed that cuts 50bps risks inviting risk-off flows from additional unwinds.

Japan will release CPI figures this week. Price growth might’ve nudged higher last month. The country’s also in the process of picking a new prime minister. That won’t weigh on policy deliberations. The new premier will just be another LDP’er.

Elsewhere, the Bank of England will probably keep rates on hold seven weeks on from the first cut since the pandemic. The drama there (i.e., in London) centers around the MPC’s decision on QT. Bear with me, I’ll keep this as straightforward as possible.

(Very) long story (very) short, the BoE’s QT effort involves both letting maturing bonds roll off and selling bonds actively. The bank, some readers may recall, essentially pioneered active QT. Over the last year, that process was split evenly between £50 billion in passive rolloff and £50 billion in active sales.

The figure above just shows you the BoE’s gilt holdings as purchased since the GFC.

The problem is, maturities are about to go up, and pretty dramatically. That means that in order to keep the overall rate of QT stable, the BoE would need to pare back active selling. If they don’t, the pace of balance sheet shrinkage will increase. And not by a little bit either.

The BoE makes decisions about the balance sheet for the forthcoming year, which is to say this Thursday’s decision will apply for the period between October of 2024 and September of 2025. There’s a parallel discussion around the bank’s effort to increase take-up at a short-term repo facility, but I think I’ve already said enough here to give the average person a headache.

This decision — about whether to keep the pace of QT steady by reducing active selling to offset larger maturities or increase the overall pace of QT in the interest of maintaining a steady pace of active sales — comes just weeks before Rachel Reeves has to deliver a budget.

Suffice to say the September BoE decision is more about QT than it is about rates. The next BoE cut is probably a November event.