Bank of Japan Keeps Interest Rates And Yield Curve Policy On Hold
The Bank of Japan (BoJ) kept its interest rates on hold in its last governing board meeting, as it was expected by economists. The BoJ’s Governor, Kazuo Ueda, noted that Japan's consumption has shown some weakness but continues to recover overall, adding that he would wait to see if next spring's wage growth would be strong enough to support consumption. Ueda also noted that “US Fed’s rate-cut phase may have an impact on Japan's economy, including on FX rates.”
In other news, shipping companies such as Maersk and Hapag Lloyd announced they were diverting all scheduled journeys with immediate effect as deteriorating security in the Red Sea disrupts shipping routes. Oil prices rose on Monday by 1% before stabilising, with Goldman Sachs analysts suggesting that companies would be able to redirect oil and gas shipments.
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BoJ Interest Rate Decision
The Bank of Japan did not deliver any surprises as it kept its borrowing costs and its yield curve control policy unchanged after its board meeting earlier in the morning.
The post meeting announcement said that “with extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank will patiently continue with monetary easing, while nimbly responding to developments in economic activity and prices, as well as financial conditions.”
Commerzbank’s analysts suggested that “the USD/JPY pair will really only be driven by the Dollar side. In other words, in the end, it will never be about Yen strength, but always about Dollar weakness when USD/JPY falls (for example, because Fed rate cut expectations are rising, as is the case now). And that the BoJ can only hope for Dollar weakness if it wants a stronger Yen.”
Canada CPI Inflation Report
Later today, Statistics Canada will publish its November inflation report. Analysts anticipate a new inflation drop to 2.9% on an annualised basis, 0.2% less than October’s figure. However, November’s inflation numbers will likely be higher than the Bank of Canada’s (BoC) headline inflation target of 2%.
Softer inflation figures could mean that the BoC’s monetary policy tightening policy works against price pressures. The Canadian dollar trades near a four-month high against the US dollar with the BoC’s Governor Tiff Macklem noting last week that “the effects of past interest rate increases will continue to work through the economy, restraining spending, and limiting growth and employment. Unfortunately, this is necessary to address remaining inflationary pressures. Yet, this period of economic weakness will pave the way for a more balanced economy. We anticipate growth and job opportunities to increase later next year, bringing inflation closer to the 2% target.”
PBoC Interest Rate Decision
The People’s Bank of China (PBoC) is expected to announce its monetary policy decision early on Wednesday morning. Economists suggest that the PBoC would keep borrowing costs on hold. The central bank injected a net 800 billion yuan ($112.02 billion) of fresh funds into the banking system through medium-term lending facility (MLF) loans, which is the biggest monthly increase ever recorded.
Market analysts believe that the PBOC will continue easing monetary policy next year to help the country’s economy. Many economists suggest that China will maintain an accommodative monetary policy, including stimulus measures and interest rate cuts.
UK November CPI Inflation
On Wednesday morning, the Office for National Statistics (ONS) will release inflation data for the month of November. Economists suggest that headline inflation will come in at 4.4% on an annualised basis, falling from the 4.6% figure recorded in October. Core inflation will likely come in at 5.5%, on a year to year basis, falling from 5.7%.
The Bank of England (BoE) deputy governor Ben Broadbent said that “it will probably require a more protracted and clearer decline in wage growth data before we can safely conclude that things are on a firmly downward trend.” Broadbent also noted that “there’s a little more uncertainty than usual about the behaviour of unemployment.”
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