Manulife Investment Management indicated that currently, many economists are predicting that the Federal Reserve will start cutting interest rates in September this year, once or multiple times, each time by 50 basis points. Manulife Investment Management's perspective is more optimistic: while there are signs of weakness in the labor market, it has not sharply deteriorated. Real wage growth is positive, and strong business investment, along with resilient consumer market performance, continue to drive the economy. The organization still expects a significant slowdown in the economy but predicts that interest rate cuts will be maintained at a stable level of 25 basis points in 2024, rather than making knee-jerk reactions based on individual data (such as irrationally large interest rate cuts). They are maintaining their forecast of three interest rate cuts in 2024. Dominique Lapointe, Global Macro Strategist of Manulife Investment Management's Multi-Asset Solution team, and Erica Camilleri, Senior Global Macro Analyst of the Multi-Asset Solution team, mentioned that since the pause of the interest rate cycle in July 2023, the Federal Reserve has been gradually easing its policies. The Federal Reserve believes that inflation has continually fallen to the 2% target and only then do they have "enough confidence" to implement an accommodative policy. Crucially, the Federal Reserve has ample time to make decisions: the economy performed well in 2023 and remains relatively stable in the first half of 2024. Therefore, when unexpected inflation spiked in the first quarter of this year, the Federal Reserve delayed the first interest rate cut, as it did not pose a threat to economic activity or full employment. As inflation slowed down again in the second quarter of 2024, the Federal Open Market Committee was confident in continuing to gradually ease policy. In the press conference held in July (and in the corresponding statements), the committee indicated preparedness for an interest rate cut in September and emphasized the "dual mandate" of stabilizing prices and promoting full employment. Subsequent data releases undoubtedly contradicted the Federal Reserve's positive view of the U.S. economy. Firstly, in July, the Institute for Supply Management's manufacturing report recorded the fastest contraction since November 2023, with new orders (47.4) and employment (43.4) signaling unfavorable future economic activity. Secondly, the employment report for July confirmed the situation that Manulife Investment Management had expected: a decline in job openings and the Job Openings and Labor Turnover Survey (JOLTS) showed a decrease in hiring, an increase in initial jobless claims, leading to a weakening job growth. Job growth was only 114,000, far lower than the market's consensus of 175,000. Moreover, excluding healthcare, education, and government employees, job growth only increased by 40,000, a worrying development as it indicates private sector hiring is nearing a dangerous level of net losses. Additionally, the household survey showed a staggering increase of 420,000 in the labor force, but only 67,000 found new jobs. As a result, the unemployment rate rose to 4.3%, 0.3 percentage points higher than the Federal Reserve's latest forecast. Manulife Investment Management stated that market sentiment quickly shifted from the "risk management" mentioned by the Federal Reserve on July 31 to an urgent need for accommodative policies. Following the employment report release, bond prices significantly rebounded, and the bond yield curve nearly flattened, a common occurrence preceding an interest rate cut cycle. However, Manulife Investment Management will closely monitor the data in the coming weeks to assess whether the U.S. economy requires a faster pace of easing and whether the Federal Reserve is willing to implement relevant policies. There are more signs indicating a weakening consumer market, coupled with a sudden increase in layoffs or initial jobless claims, supporting the argument that the U.S. economy may slow down more disorderly than expected, necessitating a quicker pace of easing. On the other hand, following the initial market shock, economic indicators such as the Institute for Supply Management's services index slightly stabilized, along with positive Federal Reserve statements, possibly reducing market expectations of excessive easing in 2024. In Japan, on July 31, the Bank of Japan raised the policy rate by 15 basis points to 0.25%, marking the second hike this cycle following the repeal of the prolonged negative interest rate policy in March 2024. This hike came as a surprise to the market, as only 30% of economic analysts and 50% of market participants expected the rate hike. The forward-looking language in the policy rate path guidance was firm, indicating that real interest rates are too low, and the impact of rate hikes on the economy is limited. This signals the Bank of Japan's determination to further raise rates and normalize policy, pushing rates to an as yet undetermined neutral level. The announcement of the long-awaited quantitative easing tapering plan was milder than market expectations, but the firm stance on the policy rate led to an appreciation of the yen against the dollar. If there is evidence of a sustained unwinding of yen-carry trades over the years, it could strengthen the forex trend, with the yen reaching its highest level against the dollar since the end of 2023. At the beginning of this year, Manulife Investment Management significantly revised its forecasts for the Bank of Japan's policy rate increases. Following this week's meeting, further adjustments may be necessary. The probability of the Bank of Japan raising rates once in 2024 and twice in 2025 (each time by 25 basis points) has increased. Therefore, Manulife Investment Management expects rates to peak at 1.0% in 2026 and anticipates at least two more rate hikes in 2025. Manulife Investment Management stated that while central banks globally are in an accommodative phase, the situation in Japan is quite different. Looking back at 2022 and 2023, most major central banks hiked rates at the most aggressive pace in decades, while the Bank of Japan maintained its negative interest rate policy. The Bank of Japan has room to raise rates because the authorities are confident that wage growth will drive inflation to remain above the target level. However, the Bank of Japan may not intend to tighten the economy. Moreover, due to the unexpected consequences of the negative interest rate policy, the authorities are using policy influence on the local financial system to raise rates to a "normal" level. Manulife Investment Management's stance on the Bank of Japan is stronger than the market's general predictions, hence they see relative value opportunities: as market expectations of further rate hikes increase, Japanese government bond yields are likely to rise further, creating an interest rate differential that can support the yen; currently, the yen has strong technical support. A favorable policy environment and corporate reform should benefit Japanese stocks, but a strengthening yen may slightly weaken the relative outperformance of Japanese stocks while increasing market volatility.