- private consumption has been resilient
- sales tax hike reduces real household income so BOJ must watch it impact on consumption
- BOJ to watch geopolitical risks like Ukraine and Middle East
- global financial regulation must be created in a way that does not excessively hamper private sector banking activity
- premature for BOJ to discuss QQ3 exit strategy
- BOJ has experience in exit strategy from 2006 and already has various means to withdraw liquidity. How that is used will depend on economic and price conditions at the time
- will not be able to use same exit strategy as previously as its balance sheet is larger and debt duration is longer
- doesn’t see an imbalance in Japan’s asset markets
BOJ dep gov on the wires but not with anything of note
USDJPY still clunking along the bottom at 101.41 as Nikkei goes nowhere fast, or indeed does EURUSD for the moment stuck around 1.3465
Good day one and all
The euro remains on the backfoot and this is having impact on other core pairs too, capping USDJPY and putting a bid in cable, USDCHF and AUDUSD
Data wise the key risk event comes from the release of the BOE MPC’s minutes from the last meeting then Carney himself steps to the rostrum a little later at the Commonwealth Games Trade and Investment conference in Glasgow.
Then tonight comes the RBNZ interest rate decision with markets largely expecting a hike
As always I wish you a successful session, and I hope we can help along the way
Times GMT+1 (UK)
Economic Data (1) 23 July
Economic Data (2) 23 July
Headlines on Bloomberg.
Japan economy minister Amari:
- Will lay out specifics of corporate tax cut by year end
Forex trading headlines for Asia Wednesday 23 July 2014
The yen found a little strength on the session today after weakening early to above101.50 against the USD. USD/JPY dropped around 15 points from the high, EUR/JPY also down around 15 points or so (a little more) from its highs. There was little to zeor in the way of news or data events.
EUR/USD came off about 12 points from its highs (EUR/AUD sellers around after the Aussie CPI), cable edged a little higher. USD/CHF was basically flat.
USD/CAD a few pips lower.
Meanswhile, AUD had a weakish start, drifting down toward 0.9380 ahead of the main data event of the day, the CPI release. A hotter than expected ‘trimmed mean. (the figure the RBA pays most heed, (see bullets, above)) saw the currency immediately marked higher and sustain its gains around 0.9430 (as of writing).
NZD followed suit, gaining to above 0.8680 ahead of tomorrow’s RBNZ announcement.
Aussie stocks hit a 6-year high before the CPI announcement today; the S&P/ASX 200 year to date climb of 4%.
Gold was range-bound. Oil found a little buying for a tiny bounce on the session.
The data was released at 0130GMT, its here: Australia – Q2 CPI: +0.5% q/q (vs. +0.5% expected)
Reactions (where bolded, bolding is mine)
- The CPI result is “a warning sign that the inflation backdrop is not as benign as markets want to price in at the moment”
- We view today’s outcome, and the inflation outlook more broadly, as neutral for monetary policy. It does not appear weak enough to justify a rate cut.
- Equally, it implies little urgency for the RBA to wind back very expansionary monetary policy. That will continue to rest on confidence and activity in non-mining sectors, the labour market and the path of the Australian dollar
- At this stage, we retain our view that the RBA will remain on hold until Q1 2015, with risks tilted towards a later start or a more protracted tightening cycle
- the 2.8% annual rate could well be the high point in this current inflation cycle
- I don’t believe the RBA will be excited by this release with their neutral bias likely to be maintained at the upcoming August monetary policy meeting.
Paul Bloxham, chief Australia economist at HSBC Holdings Plc in Sydney:
- Lowering the currency will be more difficult as it’s harder for the RBA to convincingly say that they’re likely to cut interest rates further when they’ve got inflation in the upper part of their target band
Shane Oliver, AMP chief economist:
- Australian underlying inflation is in the top half of range but won’t bring forward an RBA rate hike as it was close to expectations & wage growth is weak
- The average of June qtr mean & median inflation was 2.8% y/y, while the RBA ‘Statement on Monetary Policy’ forecast was 2.75%. So I can’t see much impact on RBA thinking from CPI
Sean Callow, strategist at Westpac Banking Corp. in Sydney:
- For a market that has been leaning heavily toward another rate cut from the RBA, they were vulnerable to any upside surprise on inflation. Inflation is very muted globally and it wouldn’t have been a great surprise if Australia had a softish reading either, so when we didn’t get that, then you got the knee-jerk response on the Aussie.
JP Morgan chief economist Stephen Walters:
- Core measures in Q2 CPI data weremixed, the trimmed mean higher than expected but weighted median unexpectedly low
- Overall the surprise was to the upside
- “This should scupper market speculation that the RBA has been edging closer to providing further policy support. Indeed, annual inflation on all of the main measures is tracking near the top of the RBA’s 2-3% target range … hardly are circumstances conducive to the RBA easing policy any time soon, particularly given the thus far modest softening of the domestic data, but nor do they signal that the cash rate is too low
- he forecasts stability in rates for a period still
- “The RBA will be disappointed with this result. We keep our 2014 ‘on hold’ RBA view..there’s no room for a rate cut here”
- Underlying … much higher than expected
- In line with the RBA’s 2.75% forecast for Q2, but the trimmed mean 0.8% jump takes its y/y pace to a 4 year high of 2.9%
Earlier quick headlines here
More (via Reuters):
BOJ deputy governo Nakaso:
- Says Japan’s economy continues to grow above its potential
- Domestic demand is firm but exports continue to move sideways
- Expects Japan’s economy to continue to grow above its potential as virtuous cycle is sustained
- QQE is exerting its intended effect with long-term yields moving stably, inflation expectations rising as a whole
- Japan eyeing end of deflation but still half-way through in meeting BOJ’s price target
- Won’t hesitate to adjust policy if risks threaten change to our economic, price projections
- No evidence to confirm view that US is suffering “secular stagnation”
- Situation in Ukraine, Russia a potential risk for global outlook, so warrants attention
- I am somewhat concerned about slow growth in emerging economies, particularly in Asia
- Decline in Japan’s private consumption broadly in line with our initial expectations
- Pace of recovery in Japan’s exports has been slower than in the past when considering pace of recovery in global growth, yen moves
- Japan’s real exports are expected to increase moderately, though must watch developments “without undue optimism”
- Japan likely to achieve 2 percent inflation in or around fiscal 2015
- Upward inflation trend more important than monthly data
- Correction of strong yen to slow overseas output shift
Bank of Japan deputy governor Nakaso:
- BOJ easing having intended impact
- BOJ won’t hesitate to adjust policy if needed
- BOJ to continue easing until 2% inflation is stable
- Japan only half way to reaching 2% price target
- Japan likely to reach 2% inflation in or around FY2015
Full text: “Japan’s Economy and Monetary Policy” (Speech at a Meeting with Business Leaders in Shizuoka)
Australia – Q2 CPI
The ‘headline’ result is the q/q CPI: +0.5%
- expected +0.5%,
- prior was +0.6%
For the y/y, +3.0%
- expected is +3.0%, prior +2.9%
The ‘trimmed mean’ (which is the measure the RBA pays most heed to):
For the q/q: +0.8%
- expected +0.6%,
- prior +0.6%, revised from +0.5%
For the y/y: +2.9%
- expected is 2.7%, prior 2.6%
Finally, there is the ‘weighted median’ CPI: +0.6% q/q
- For q/q: expected 0.7%, prior was 0.6%
- For y/y, in at +2.7%: expected 2.7%, prior was 2.7%
AUD marked higher immediately.
Adam nailed this in his preview: Preview: Will inflation data finally get AUD/USD moving?
New Zealand finance minister English:
- Expects NZ to increase investment in Australia
- NZ investment in Australia has flatlined in past 10 years
More headlines from English on the Bloomberg
Earlier from English, here
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