The Macro Minute: Will faster BOJ rate hikes trigger a correction in global stocks?

The potential for faster Bank of Japan rate hikes to trigger a global stock market correction is mitigated by a 63% decline in Japanese yen short positions since July, suggesting the risk of a "row-row" phase transition to a risk-off regime is low. However, the Federal Reserve faces a significant credibility gap by relying on lagging indicators like August CPI data rather than market-implied signals. Current market models indicate that the neutral rate of interest (R-star) has risen to between 1.61% and 1.88%, leaving the effective real Fed funds rate at a modestly accommodative 1.21%. This misalignment, coupled with an AI capital expenditure boom and global fiscal stimulus, necessitates cyclical tightening to appease bond vigilantes. Despite rising nominal 10-year Treasury yields, which have a fair value of 5.85%, the long-term outlook remains bullish for equities as the Fed will likely eventually pivot to yield curve control to manage debt debasement.