Written Commentary
Digesting BoJ policy meeting on light day for statistics: Swedish CPI, final French HICP, UK Inflation Expectations, US Import Prices and Michigan Sentiment; ECB and Fed speakers, G7 meeting continues
Japan: BoJ defers decisions on QT, leaves door open to July rate hike, as board divisions and uncertainty about future policy path remain all too clear
EVENTS PREVIEW
The week ends with markets digesting the BoJ policy meeting, and a very modest run of data, with Swedish CPI (higher than expected) and final French HICP (revised down) to digest, while BoE/Ipsos Inflation Expectations, US Import Prices and Michigan Sentiment lie ahead, along with a goodly number of ECB and Fed speakers, as the G7 leaders’ summit continues. Next week brings a busy run of US and China activity indicators (Retail Sales, Industrial Production and Housing/Property), UK inflation, G7 and India Flash PMIs and other surveys, Japan Orders, Trade and National CPI, BoE and RBA policy meetings, China’s MTLF and LPR decisions, and the minutes of the BoC’s rate cut meeting. The Eid al-Adha (Feast of the Sacrifice) holidays in Islamic countries will dampen trading volumes.
** Japan – BoJ policy meeting **
Despite much anticipation, the BoJ held rates and deferred the decision on reducing the pace of its JGB purchases until the July meeting, while also suggesting a rate hike was on the table for the July meeting. Ueda’s comments at the press conference suggests the BoJ remains concerned about Household Consumption, and as much as it has expressed confidence that a virtuous wage-price is in place, it is still looking for more data to confirm this, doubtless reflecting divergent opinions on the policy committee. His comments on balance sheet reduction also suggest that a consensus board view has not yet been formed, saying on the one hand that the reduction will be significant, but that he could offer any idea of how substantial, and also stressing the need for ‘flexibility to ensure market stability. While the BoJ holding a meeting with market participants to discuss its QT strategy is more than understandable, it also underlines that preserving market stability continues to be its overriding priority. As for the comments on the JPY and its policy impact, there was really nothing new. On balance, the lack of detail on QT as well as the continued ambivalence on the rate outlook will keep the JPY under pressure, particularly as markets may well take the view that ‘actions speak louder than words’ and per se tone down reaction to BoJ rhetoric.
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