Aurelia Butler

TOKYO (Reuters) -The Bank of Japan is expected to keep interest rates ultra-low on Thursday and reassure markets that it will continue to swim against a global tide of central banks tightening monetary policy to combat soaring inflation.Any such decision could drive down the Japanese currency further from 24-year lows hit in recent weeks, as investors focus on the widening gap between Japan’s ultra-low interest rates and the U.S. Federal Reserve’s aggressive rate hike plans.The Fed delivered its third straight rate increase of 75 basis points on Wednesday and signalled more large hikes at its upcoming meetings, underscoring the U.S. central bank’s resolve not to let up in its battle to contain inflation.The BOJ, by contrast, is set to leave unchanged its -0.1% target for short-term rates, and 0% for the 10-year government bond yield under its yield curve control (YCC) policy at its two-day meeting ending on Thursday.The dollar index hit a fresh 20-year high after the Fed’s announcement, although the U.S. currency’s gain against the yen was limited as traders remained wary of the chance of yen-buying intervention by Japanese authorities. The dollar last traded at 143.98 yen.Markets are focusing on whether the BOJ would make any tweaks to its dovish guidance projecting short- and long-term interest rates to remain at “current or lower” levels, and a pledge to ramp up stimulus “without hesitation” with an eye on the economic impact of the COVID-19 pandemic.”Making big changes to the BOJ’s guidance could stoke market speculation of an early exit from YCC, and cause big disruptions in the bond market,” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley (NYSE:MS) Securities.”That’s something the BOJ will probably avoid this time,” she said. “With other central banks hiking rates, the BOJ’s negative rate policy will come under the spotlight and may unleash further yen selling.”The BOJ’s rate review will be the first one for Hajime Takata and Naoki Tamura, who joined the nine-member board in July. They succeeded former commercial banker Hitoshi Suzuki and economist Goushi Kataoka, a vocal advocate of aggressive easing who consistently voted against keeping rates steady.A unanimous vote would suggest the two newcomers are unlikely to rock the boat on monetary policy for the time being.Japan’s core consumer inflation quickened to 2.8% in August, exceeding the BOJ’s 2% target for a fifth straight month, as price pressure from raw materials and yen falls broadened.But BOJ Governor Haruhiko Kuroda has ruled out the chance of a near-term withdrawal of stimulus on the view that wages need to rise more to sustainably achieve his 2% inflation target.Kuroda’s dovish message has worked to weaken the yen, contradicting the government’s efforts to slow the currency’s decline through verbal threats of yen-buying intervention.Once welcomed for the boost it gives to exports, a weak yen has turned into a headache for Japanese policymakers as it pushes up the cost of importing already expensive fuel and raw materials.The world’s third largest economy expanded an annualised 3.5% in April-June, but its recovery has been hobbled by a resurgence in COVID-19 infections, supply constraints and rising raw material costs. More

NEW YORK (Reuters) – Futures tied to Wall Street’s fear gauge on Wednesday sent a signal that has historically marked intense selling pressure in markets, but has sometimes preceded stock market rebounds.The October VIX futures rose 0.28 points above the November futures on Wednesday, the widest margin since mid-June, after Wall Street’s main indexes sold off following a 75 basis point interest rate hike by the Federal Reserve.VIX futures, which plot volatility expectations for several months ahead, normally remain upward sloping, with near-term futures relatively less pricey than those that target coming months.An inverted curve, when near-dated contracts are more expensive than later dated ones, suggests investors are growing more worried about near-term events, raising the cost of hedging. Such a signal has occurred prominently five times since 2020, with two instances followed by market rebounds, including the most recent one in mid-June.”It’s usually a sign all the risk is being pulled into the here and the now,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group.”That’s why often we will look at it as a capitulation indicator,” Murphy said.The two nearest VIX futures last inverted in June, amid a bout of intense selling that drove the S&P 500 (SPX) to its bear market low. The index rebounded 17% soon after, though most of that rally has been reversed on fears the Fed will be more hawkish than previously anticipated.While an inversion this time may indicate intensifying selling pressure, it does not necessarily signal an immediate end to the market’s recent slide, Murphy said. For instance, the two front month VIX futures remained inverted for a month – from mid-February through mid-March – before the stock market sell-off in the first quarter took a breather. More

(Reuters) -Three major U.S. banks said on Wednesday they will hike their prime lending rates by 75 basis points, bringing the rates to their highest since the global financial crisis of 2008. JPMorgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C) and Wells Fargo (NYSE:WFC) & Co said the new rates would take effect on Thursday.The move follows a similar hefty hike by the Federal Reserve as it attempts to tame stubbornly high inflation in the United States.Hopes of a soft landing have waned in recent months as the Fed remains steadfast in its decision to keep raising rates until data shows a sustained pullback in consumer prices.Central bankers expect to raise the rate to 4.6% by the end of next year, according to the median estimate of all 19 Fed policymakers. A hike in interest rates typically boosts banks’ profitability, since they can earn more net interest income – a metric that gauges the difference between the money banks earn on loans and pay out on deposits.However, too high interest rates can tip the economy over into a recession and squeeze consumer demand for loans, which can ultimately hurt lenders.”Higher interest rates are going to lead to a slowdown in both consumer borrowing as well as corporate borrowing,” said Lance Roberts, chief investment strategist and economist at RIA Advisors.”This is going to impact economic growth to a great degree as we move further into 2023,” he added.On Wednesday, Fed Chair Jerome Powell said U.S. central bank policymakers are “strongly resolved” to bring down inflation from the highest levels in four decades and “will keep at it until the job is done,” a process he repeated would not come without pain. More

Investors in Asia could be waking up to more volatility after the Federal Reserve’s latest jumbo rate increase and message about future hikes. The U.S. central bank on Wednesday raised rates by 75 basis points for a third straight meeting as it is bent on taming the steepest surge in inflation in 40 years. That action was largely expected but may have offered some relief after markets had priced in a small chance of a mammoth 100-basis point hike.Instead, it was what comes next that appeared to seize the market’s attention. Another 125 basis points in hikes are now signalled for the last two meetings of 2022, with investors bracing for more to come early next year. New Fed projections show its policy rate topping out at 4.60% in 2023.In his press conference following the Fed’s statement, Chair Jerome Powell said achieving a soft landing for the economy is “very challenging.” Policymakers see the need to lift the policy rate to a “restrictive level” and “keep it there for some time,” Powell added.Already-harried markets had trouble agreeing on a direction in the hours following the Fed’s decision and Powell’s ensuing comments.Two-year U.S. Treasury yields burst well above 4% in the immediate aftermath of the Fed’s statement but then eased closer to that level. Stocks dove, recovered, and then slid again, with the benchmark S&P 500 ending down 1.7%. The dollar index hit a fresh two-decade high, then edged back.Digesting the Fed may take longer, as initial reactions to the central bank’s meetings can be misleading. What’s more, investors on Thursday will have other central bank actions to contend with, including in Japan, England and Switzerland.Key developments that could provide more direction to markets on Wednesday: Bank of Japan monetary policy decisionTaiwan, Indonesia central bank meetingsBank of England policy decision Swiss National Bank monetary policy meeting More