What are the drivers behind the Japanese stock rally? Is the recent change in monetary policy possibly throwing a spanner in the works? And is Japan benefiting from the trade war between China and the West? Mark Van Assche, Private Banking and Wealth Office account manager, talks about it with Romain Dédericks, Portfolio Manager at KBC Asset Management. 

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• Inflation is still on a downward trend in both the US and Europe.
• However, stubborn underlying inflation (especially in the services sector) and oil prices that have recently risen again are slowing down the disinflation process slightly more than originally thought. 
• In the meantime, we still see inflation figures that continue to surprise, particularly in the US.

• The exceptional stimulus programmes are being scaled back, but there is no sign of savings drift. Programmes such as EU Next Generation and the Inflation Reduction Act in the US are still substantial and continue to offer considerable support. China is also stimulating its flagging economy. 
• Central banks in the US and Europe raised key rates at an unprecedented pace in an effort to slow growth and cool inflation. 
• In their recent communications, the banks confirm that the disinflation process is still on track but that corroboration is needed before key rates are cut. 
• The market is pinning its hopes on an initial ECB rate cut in June, but is unsure about the timing in the US.

• Interest rates appear to have peaked. 
• However, a range of inflation data (especially in the US) and higher oil prices cast doubt on the timing and magnitude of the expected cut in policy rates. As a result, we still see interest rates making occasional bucks.

• Sentiment is positive for the asset class. 
• While the outlook for company results in 2024 may be slightly overly positive, the market doesn’t seem to be particularly worried about it for now. 
• We are looking forward to the results for the first quarter, which will gradually start coming in from now on. 
• The market expects earnings to grow by about 4% in the US, but expects them to contract by just under 15% in Europe. So, the bar has again be set quite low.

• Oil prices have risen sharply since the beginning of the year. This is fuelling the current prevailing expectation of lower inflation. 
• However, the conflict in the Middle East and Ukraine could continue to cause nervousness. 
• Not an easy environment, therefore, for policymakers to take decisions on interest rates. 
• The US elections could also give rise to volatility later this year.

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