Interesting News from Japan
Euro looks stable as the market expects little from ECB
Today’s main event is the ECB meeting, with the 12.45BST announcement followed up by the press conference 45 minutes later. Widespread expectations in the market are for the governing council to stand pat on policy, with outside calls for a possible extension of existing QE. In light of this, the EUR has been well supported against the USD in the wake of the softer US ISM read earlier this week. EUR/GBP is also on the up, largely on GBP selling – notable was the move up from .8333 lows this week, which is 1.2000 in the inverse rate (plenty of corporate hedging flow at this level). Downside risk comes from any changes in the staff projections in inflation and growth, but these will have to see marked downgrades if the lead spot rate is to test and push through the low 1.1100’s which have held well in the last week or so.
Interesting news from Japan
First of all we had a release of a speech from BOJ dep. gov. Nakaso concerning the incoming policy review. He said that:
- Next policy meeting will discuss what needs to be done to achieve 2% price target at earliest possible time
- We will take measures we judge necessary for Japan’s economy
- Comprehensive review will not lead to reduction in monetary easing
- BOJ won’t conduct policy to affect fx, BOJ is conducting policy in line with G7/G20 agreement, trading to affect fx rates falls under jurisdiction of MOF, Nakaso does not see big meaning of debating whether to ditch BOJ’s 2-year time frame for hitting inflation goal, no comment on calls for BOJ to buy foreign bonds, BOJ conducts policy for domestic purpose of hitting price goal.
- Depending on economic and price developments further measures must still be deemed necessary
- Flipside of positive developments from negative rates is growing pressure on fin institutions profits
- The view that BOJ might disregard intermediary function by finance sector is totally unfounded
- BOJ will take into account the possibility that negative rates could affect people’s confidence by causing concerns over sustainability of financial function
JPY has been trading higher post the speech but only for a while, BOJ is still leaving the door open for an additional easing in September but markets don’t believe it will be done and there is little for Yen bears to be pleased with.
Japan’s GDP came better than expected, the final reading for Q2 came at 0.2% q/q (0.0% expected). GDP Annualized for Q2 came at 0.7% with expectations at 0.2%., business spending at -0.1% q/q (exp. -0.4%) and Private consumption at 0.2% (as expected). Data is rather promising for BOJ but there is still no sign of an inflation rising to 2% in Japan, GDP deflator y/y for Q2 came at 0.7% with exp. at 0.8%.
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