BoJ pushes inflation target

20 July, 2017

BoJ pushes inflation target

The Yen traded slightly lower against the Dollar early on Thursday after the BoJ kept interest rates on hold and pushed the deadline for it to reach its inflation target for another six months. As widely anticipated the central bank kept key policy rates at -0.1% and a 10-year government bond yield target of around 0%.

The Yen’s losses were limited as the BoJ raised its GDP forecast slightly for the current and next fiscal year, but it is becoming obvious that Japan’s policy makers are not willing to join the tightening course followed by other central banks. The BoJ has pushed back the inflation target for the sixth time since announcing the expansion of asset purchases in April 2013. Now they expect the 2% target will be reached in 2020, given that there is no more postponement. This indicates that the BoJ will be the last central bank to tighten its policy, thus keeping the Yen under pressure.

Traders are more interested in ECB’s meeting today. Despite the central bank being expected to keep policy unchanged, every single word will be closely scrutinized from President Mario Draghi. The Euro has already appreciated by 3% since Draghi hinted on June 27 that the ECB could adjust its policy tools as economic prospects improve.В  However, ECB policy makers were fast to claim that markets misunderstood their Chief, as markets continued to buy the single currency. Today he will be given another chance to elaborate on his previous statements.

Given the improvement in the Eurozone economy, Mr. Draghi is in the same boat as Yellen, Poloz and Carney. The QE program expires by end of this year and the recent selloff in European bonds suggests that the €60 billion bond buying rate per month, is about to get reduced. Today’s €60 billion question is, how can the central bank signal reduction in the program without tightening financial conditions?

The last thing the ECB wants is a strong Euro and tightened financial conditions for now. It is a complicated process to start normalizing policy without disrupting markets, so while Draghi wants to prepare investors for a gradual wind-down of asset purchases, he is likely to hint that the pace will be gradual and easing options will remain open. The trickiest part is how to deliver a confident message without leading to further selloffs in bonds and stocks and additional appreciation in the Euro. Even if today’s statement seems more dovish, I would still prefer to buy the Euro on dips then selling on rallies.


Source link  
Euro shakes off political risk

The Euro strengthened slightly early Thursday, to trade at 1.1837 after hitting a new five-month low of 1.1761 the previous day. It seems that the single...

Risk aversion returns on higher yields

U.S. consumers are becoming more confident to spend. U.S. retail sales increased 0.3% in April, and March figures were revised up to 0.8% from 0.6%. When...

U.K. jobs under the radar

Stocks in Asia were uninspired by the slight gains on Wall Street during Monday trading. Although the easing of U.S.- China trade tensions was...


Emerging markets face punishment

The unprecedented turnaround of fortunes for the US Dollar is continuing to leave a lasting impression on the FX markets, following the Dollar Index...

What to watch in the week ahead?

U.S. equities rallied sharply at the end of last week as did the dollar, despite the NFP disappointment. The headline number for the rise in jobs came...

FOMC disappoints hawkish USD bulls

The FOMC has spoken, and to no ones surprise it has not raised interest rates at all for this month; opting to continue to hold them at the current 1.75%...


Oil ticks higher, dollar bulls stay in charge

When oil markets are headed towards rebalancing, any shocks due to supply shortage may lead to a huge spike in prices. Brent prices fell...

Investors no surprised by earnings surprises

Wall Street ended mixed on Monday as tech stocks continued to lead the major indices. The S&P 500 finished flat at 2,670, with the 1.07% gain...

It's number 3 again!

Number 3 has been of crucial significance in 2018. Trump has been predicting that his policies would bring an increase in annual growth to over than 3% a year. The Federal Reserve is expected...

  


Share: