Aurelia Butler

TOKYO (Reuters) – The Bank of Japan is expected to keep policy unchanged on Friday but will likely consider if tweaks to ultra-loose monetary settings need to be made as bond yields rise and inflationary pressures persist.Markets are focusing on comments from Governor Kazuo Ueda’s briefing, to be held after the bank’s two-day policy meeting, for clues on how soon the bank could phase out the massive stimulus programme of his predecessor.All economists surveyed in a Reuters poll expect the central bank to maintain its short-term interest rate target of -0.1% and that for the 10-year bond yield around 0%.Many analysts also expect the BOJ to make no changes to an allowance band of 50 basis point set either side of the yield target, as well as a new hard cap of 1.0% adopted in July.Any such decision would contrast with those of U.S. and European central banks, which in recent meetings have signalled their resolve to keep borrowing costs high to rein in inflation.But with inflation exceeding the BOJ’s target and the yen renewing its slide, markets are focusing on any signals Ueda could drop on the timing of a policy shift.Data released earlier on Friday showed Japan’s core inflation hit 3.1% in August, staying above the central bank’s 2% target for a 17th straight month in a sign of broadening price pressure in the world’s third-largest economy.In a move seen by markets as a step toward an exit, the BOJ in July loosened its grip on long-term interest rates to allow them to rise more freely, a nod to increasing inflation.Ueda told a recent interview the BOJ could have enough data by year-end to determine whether to end negative rates, heightening market expectations of a near-term policy shift.A Reuters poll for September showed most economists predicting an end to negative interest rates in 2024. Prospects of a rate hike have helped pushed up Japan’s 10-year government bond yield to a fresh decade-high on Thursday.The BOJ faces various challenges in exiting former governor Haruhiko Kuroda’s radical stimulus, including weak signs in the global economy and the risk of triggering a spike in yields that boost the cost of funding Japan’s huge public debt.BOJ officials, including Ueda, have also stressed the need to keep easy policy until they are convinced that inflation will stably hit 2% driven by solid consumption and wage growth.But some analysts see the yen, rather than wage growth or inflation, as the primary trigger for BOJ action.Growing prospects of longer-for-higher U.S. interest rates have pushed the yen down near the 150-per-dollar level seen as Tokyo’s line-in-the-sand for possible currency intervention.The yen’s renewed slide has triggered fresh verbal warnings by government officials, piling pressure on the BOJ to play its part to moderate the pain from rising import costs.Mari Iwashita, chief market economist at Daiwa Securities, expects the BOJ to tweak its dovish forward guidance in October and end its negative rate policy early next year.”The BOJ could pull the trigger any time. It really depends on the yen’s moves,” she said. More

(Reuters) – Central banks for the world’s biggest economies have served notice that they will keep interest rates as high as needed to tame inflation, even as two years of unprecedented global policy tightening reaches a peak.The so-called “higher for longer” mantra is now the official stance of the U.S. Federal Reserve, European Central Bank and the Bank of England, as well as being echoed by monetary policy-makers from Oslo to Taipei.For central bankers first chastised for being late to spot the post-pandemic surge in inflation and then cautioned for overdoing their response, the prize of returning the global economy to stable prices without recession is now within sight.Their task is to convince financial markets not to undo their work with bets on early rate cuts, and to watch for new risks such as rising oil prices – while hoping governments help with budgets that do not further fuel inflation. “We will need to keep interest rates high enough for long enough to ensure that we get the job done,” Bank of England Governor Andrew Bailey said on Thursday after policymakers narrowly decided to hold its main interest rate at 5.25%. U.S. Federal Reserve policymakers had a similar message on Wednesday. They held the Fed’s benchmark rate at 5.25%-5.50% but stressed they would remain tough in an inflation fight they now see lasting into 2026.In Europe, ECB President Christine Lagarde was adamant last week that further hikes for the 20-country euro zone could not be ruled out. The central banks of Norway and Sweden both signalled on Thursday they could hike again, with even the Swiss National Bank holding out the prospect of further interest rate hikes despite inflation at a comfortable 1.6%.Turkey’s central bank confirmed its hawkish turn while in Asia, Taiwan’s central bank flagged continued tight policy. The South African Reserve Bank held its key rate steady, but policymakers cited continued risks to the inflation outlook.Significant outliers include the Bank of Japan, widely expected to stick to negative rates at a meeting ending Friday, and the People’s Bank of China, where recent better economic prospects allowed it to keep rates on hold on Thursday. “TIPPING POINT”Belgian central bank chief and ECB board member Pierre Wunsch – an early voice urging tougher central bank action to counter inflation from end-2021 – said on Thursday that monetary policy was now at the right level.”At some point we were, I believe, lagging behind and we had to do some catch up. But that’s over. We’ve done this catch up,” Wunsch told the Reuters Global Markets Forum. Despite gradually cooling, inflation in most large economies remains well above the target 2% level which central bankers deem healthy. In August it stood at 3.7% in the United States and 5.2% in the euro zone. Yet for all the tough rhetoric, investors remain sceptical that central banks will stay the course given doubts over the strength of the Chinese economy and geopolitical worries from the Ukraine war to U.S.-Chinese rivalry.”By this time next year, we anticipate that 21 out of the world’s 30 major central banks will be cutting interest rates,” Capital Economics wrote in a commentary entitled “A tipping point for global monetary policy”. It’s a potential twist that rattled markets. World stocks fell and the dollar gained on Thursday as Treasury yields rose to levels last seen before the Great Financial Crisis. Sterling and the Swiss franc both tumbled.That said, the prospect that global interest rates are pretty close to peak will be of huge relief to emerging economies suffering from heavy debt servicing loads.With the United States and Europe both seen avoiding the outright recession once predicted, the enticing view of a “soft landing” for the global economy is coming back into sight, largely thanks to unusually buoyant labour markets.Policymakers admit they have yet to agree on an explanation for this. Some suggest firms are anxious to avoid a repeat of the skills shortages they suffered when the global economy took off in 2021 after COVID lockdowns and so are “labour hoarding”.That unsolved puzzle means opinions are divided as to what the real underlying strength of the global economy is, and whether it can take a sustained period of high interest rates without overall demand being badly damaged.Some argue that this was why they detected, through all the tough talk, a non-committal tone to the Federal Reserve’s language on the likelihood of a further rate hike this year.”(U.S. Fed chairman Jerome) Powell was non-committal and even faintly dovish about another 2023 hike, which is the actual here-and-now decision,” said Evercore ISI Vice Chairman Krishna Guha. “This is a Fed that sees an opening for a soft landing and will try not to blow it.” (This story has been refiled to fix the spelling of Taipei in paragraph 2) More

TOKYO (Reuters) – Japan’s core inflation was steady in August and stayed above the central bank’s 2% target for a 17th straight month, data showed on Friday, a sign of broadening price pressure that could heighten the case for an exit from ultra-easy monetary policy.The data comes hours before the Bank of Japan (BOJ) concludes its two-day policy meeting that began on Thursday.While the BOJ is widely expected to keep ultra-easy monetary settings unchanged, markets are focusing on any hints from Governor Kazuo Ueda on how soon it could phase out stimulus.The nationwide core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, increased 3.1% in August from a year earlier, government data showed, compared with a median market forecast for a 3.0% gain. It followed a 3.1% rise in July.While government subsidies pushed down utility bills, prices rose for a range of food and daily necessities in a sign that steady inflation was taking hold in the world’s third-largest economy.Service prices rose 2.5% year-on-year in August after a 2.4% gain in July, suggesting that rising wages could lead to broader price pressures in the world’s third-largest economy.The so-called “core core” index that strips away the effect of both volatile fresh food and fuel prices, rose 4.3% in August from a year earlier, following the same year-on-year pace of increase in July.”The persistent stickiness of inflation means the BOJ will need to revise up their inflation forecasts at its October meeting,” said Gabriel Ng, an economist at Capital Economics.”The upshot is that we think BoJ Governor Ueda will use this window of opportunity where inflation still remains above its 2% target to dismantle the ultra-loose policy regime put in place by his predecessor.”After hitting a peak of 4.2% in January, core inflation continued to slow as the effects of last year’s sharp rises in fuel and raw material prices dissipate.But some analysts say the slowdown has not been as large as expected due to steady rises in food prices, and could keep inflation above the BOJ’s target longer than initially thought.Markets are simmering with speculation the BOJ will soon end negative short-term interest rates and a 0% cap set for the 10-year bond yield in response to broadening inflationary pressure.The BOJ has played down the near-term chance of phasing out its massive stimulus, arguing the recent cost-driven price rises need to change into demand-driven increases in inflation for the bank to consider hiking interest rates. More

Yair Lapid, head of Israel’s largest opposition group, said the prospect of the country establishing full relations with Saudi Arabia was ‘welcome’ More

The GfK consumer sentiment indicator rose for a second month in a row to -21 in September, the highest since January last year, from -25 in August although it remained below the average of -10 for the survey, which has been running since 1974.Economists polled by Reuters had forecast a fall to -27.”While this month’s improved headline score is good news, it’s important to note many households are still struggling with the cost-of-living crisis and that economic conditions are tough,” Joe Staton, GfK’s client strategy director, said.”The reality is that consumer confidence remains suppressed, and the financial mood of the nation is still negative.”Households’ expectations for their personal financial situation over the coming year edged up to -2 to -3. A year ago, the reading stood at -40 after energy prices soared.A gauge of views about the economy over the next 12 months improved more sharply to -24 from -30.Consumer price inflation dropped to 6.7% in August, down from a 41-year high of 11.1% reached in October 2022 but still more than three times the Bank of England’s target.The BoE on Thursday paused its long run of interest rate rises as the country’s economy slowed, holding Bank Rate at 5.25% after 14 back-to-back hikes. The GfK data was based on a survey of 2,001 people conducted between Sept. 1 and Sept. 13. More

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