Japan

Given the rising odds of another Fed move before year-end, and the uncertainty that additional easing can be delivered in Europe and Japan, we re-iterate our tactical call to maintain a below-benchmark duration stance.

In August, the model outperformed the S&P 500 and global equities in both USD and local-currency terms. For September, the model increased its allocation to cash and trimmed its exposure to equities.

Investors are being forced into riskier asset classes by the TINA effect, but the gaping macro disequilibria makes it difficult for investors to see how we move back to equilibrium in a benign way. Monetary policy on its own is limited in its ability to soften the adjustment, but the good news is that the political pendulum is swinging toward fiscal stimulus.

Investors are being forced into riskier asset classes by the TINA effect, but the gaping macro disequilibria makes it difficult for investors to see how we move back to equilibrium in a benign way. Monetary policy on its own is limited in its ability to soften the adjustment, but the good news is that the political pendulum is swinging toward fiscal stimulus.

Commercial real estate and REITs have benefited greatly from accommodative monetary policy. Though they are approaching a peak, our analysis shows that they remain in a "goldilocks" scenario and still offer plenty of upside.

Most scenarios point towards higher Japanese bond yields with valuations overstretched. Maintain a maximum underweight stance on Japan in global hedged bond portfolios.

The 10-year Treasury yield's post-crisis pattern suggests that a monetary policy catalyst is required to spur a material increase of around +100bps or more. In this <i>Special Report</i> we do a survey of the major developed market central banks to assess whether any could possibly incite such a "bond tantrum" during the next six months.

The question of how far central banks should go in their efforts to boost growth is becoming increasingly controversial. In this <i>Special Report</i>, BCA Chief Economist Martin Barnes outlines his personal view that monetary policy has done enough. He will debate this issue with Peter Berezin, BCA Chief Global Strategist at next month's BCA Conference in NY.

U.S. inflationary forces remain tame, forcing the Fed to maintain an easy bias. Yet, the global economy is improving. This confluence could weigh on the dollar and boost commodity currencies. The NZD has more upside, but it will lag petro currencies. The BoJ will act, but timing is uncertain. Keep a negative bias toward the yen. CAD/NOK has more downside.

More aggressive monetary and fiscal stimulus will be necessary to resuscitate the Japanese economy. While the BoJ's forthcoming review is likely to endorse the current policy stance, there is a good chance that Kuroda will open the door to more radical measures. These measures will push down the yen, giving Japanese stocks a lift in the process. Sentiment on the U.K. economy has gotten too bearish. We are closing our short GBP/SEK trade and going long GBP/JPY.