Tag Archives: dovish

Business

Japan’s inflation hits 8-year high in test of BOJ’s dovish policy

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  • Sept core CPI rises 3.0% yr/yr, matches forecast
  • Core consumer inflation stays above BOJ goal for 6th month
  • Data underscores broadening inflationary pressure
  • BOJ seen keeping ultra-low interest rates on fragile economy

TOKYO, Oct 21 (Reuters) – Japan’s core consumer inflation rate accelerated to a fresh eight-year high of 3.0% in September, challenging the central bank’s resolve to retain its ultra-easy policy stance as the yen’s slump to 32-year lows continue to push up import costs.

The inflation data highlights the dilemma the Bank of Japan faces as it tries to underpin a weak economy by maintaining ultra-low interest rates, which in turn are fuelling an unwelcome slide in the yen.

Reuters Graphics

The increase in the nationwide core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, matched a median market forecast and followed a 2.8% rise in August. It stayed above the BOJ’s 2.0% target for the sixth month, and was the fastest pace of gain since September 2014, data showed on Friday.

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The broadening price pressures in Japan and the yen’s tumble below the key psychological barrier of 150 to the dollar will likely keep alive market speculation of a tweak to the Bank of Japan’s dovish stance over coming months.

“The current price rises are driven mostly by rising import costs rather than strong demand. Governor Kuroda may maintain policy for the rest of his term until April, though the key is whether the government will tolerate that,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The data heightens the chance the BOJ will revise up its consumer inflation forecasts in new quarterly forecasts due at next week’s policy meeting, analysts say.

The yen’s decline has been particularly painful for Japan due to its heavy reliance on imports for fuel and most raw material, forcing companies to hike prices for a wide range of goods including fried chicken, chocolates to bread.

The so-called ‘core-core’ index, which strips away both fresh food and energy costs, rose 1.8% in September from a year earlier, accelerating from a 1.6% gain in August and marking the fastest annual pace since March 2015.

The rise in the core-core index, which the BOJ closely watches as a key gauge of the underlying strength of inflation, toward its 2% target casts doubt on the central bank’s view that recent price rises will prove temporary.

With Japan’s inflation still modest compared with price rises seen in other major economies, the BOJ has pledged to keep interest rates super-low, remaining an outlier in a global wave of monetary policy tightening.

BOJ Governor Haruhiko Kuroda has stressed the need to focus on supporting the economy until wage growth picks up enough to compensate for the rising cost of living.

While Japan’s labour union lobby has pledged to demand wage hikes of around 5% in next year’s wage negotiations, analysts doubt pay will rise so much with fears of global recession and soft domestic demand clouding the outlook for many companies.

The September CPI data showed that while goods prices rose 5.6% year-on-year, services prices were just up 0.2% in a sign of how Japan’s inflation is still driven mostly by cost-push factors.

“Consumer inflation is likely to slow in 2023. If so, any tweak to the BOJ’s easy monetary policy will be minor even under the change to the bank’s leadership next year,” said Yasunari Ueno, chief market economist at Mizuho Securities.

Governor Kuroda will see his second, five-year term expire in April next year. The term of his two deputy governors will also end in March.

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Reporting by Leika Kihara and Takahiko Wada; Additional reporting by Yoshifumi Takemoto; Editing by Sam Holmes and Shri Navaratnam

Our Standards: The Thomson Reuters Trust Principles.

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Business

Was Fed’s Powell dovish or not? 4 key takeaways from Wednesday’s press conference

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Investors reacted as if Fed Chairman Jerome Powell’s press conference Wednesday was dovish, but many economists think it was on the hawkish side of the street.

Here are some of the key takeaways from Powell’s hour-long discussion with reporters about the state of the economy and central bank policy:

Read: Fed jacks up rates to combat highest inflation in 41 years

You say ‘dovish’ and I say ‘hawkish’

After Powell spoke, stock prices
DJIA,
+1.37%

SPX,
+2.62%
rose sharply and bond yields
TMUBMUSD02Y,
2.984%
declined more at the short end than the long end, clear signs the market thought Powell was dovish.

But Robert Perli, head of global policy at Piper Sandler, disagreed with this conclusion.

“The press conference was hawkish,” he said.

“All Powell could do at the press conference today was talk about how inflation was too high, how the Fed is determined to bring it down, and implicitly how he would be willing to tolerate a recession if that’s what’s needed to get the job done,” Perli said.

The market latched on to Powell’s statement that slowing down from the pace of 0.75-percentage-point rate hikes will likely be appropriate “at some point.” Perli said this is “obvious” as the Fed can’t continue on that pace forever.

The market also liked when Powell said the Fed was moving to a new “meeting-to-meeting” phase, perhaps believing that a peak in interest rates is near.

Perli said that’s a misreading and Powell doesn’t want to give guidance because there is so much uncertainty.

Scott Anderson, chief economist at Bank of the West, said the lack of forward guidance from the Fed could increase interest-rate and stock-market volatility around important U.S. data releases, especially on inflation “as investors try to determine what it might mean for the pace of additional rate hikes and the terminal peak for rates in the current tightening cycle.”

Powell ‘bobs and weaves’ on recession

Powell managed to “bob and weave” around the questions of recession, said Josh Shapiro, chief U.S. economist at MFR.

Powell said the Fed wasn’t trying to create a recession and did not expect one, and also that we are not currently in one. He refused to categorically state how it would affect the Fed’s policy path if one materialized, Shapiro said.

The Fed chairman said there was still a path to bring inflation down while sustaining a strong labor market.

“We continue to think that there is a path [to a soft landing]. We know the path has clearly narrowed…and may narrow further,” he said.

Powell said the Fed is determined to bring inflation down, and this likely means a period of “below-trend economic growth and some softening in the labor market conditions. “

What about September?

Powell kept the door open for another “unusually large” 0.75-percentage-point hike in September, but said it would depend on the data.

Carl Tannenbaum, chief economist at Northern Trust, noted that Powell suggested that the year-end fed funds rate would be in the range of 3.25%-3.5%. That is another 100 basis points higher, which the Fed might prefer to accomplish with a 50-basis-point increase followed by two 25-basis-point hikes, rather than going from 75 basis points in September, to 25, then to zero. Powell “sounded marginally less hawkish to me,” he said.

Balance-sheet plans

Powell said the Fed’s program to shrink its balance sheet is working and markets “should be able to absorb this.” He said the plan was on track and could take two to two-and-a-half years.

Some economists have starting to forecast the Fed will end the “quantitative tightening” program next year.

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Business

World shares hit record as investors hold to dovish Fed bets By Reuters

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© Reuters. FILE PHOTO: People are reflected on an electric board showing Nikkei index and its graph outside a brokerage at a business district in Tokyo, Japan, June 21, 2021. REUTERS/Kim Kyung-Hoon

By Hideyuki Sano

TOKYO (Reuters) – A global stocks index hit a record high on Tuesday as investors took comfort in growing views the U.S. Federal Reserve is likely to delay the start of tapering its asset purchases and maintain its expansive monetary policy for the near-term.

European bourses are expected to dip, however, after gains on Monday, with Euro Stoxx futures down 0.1% and futures trading 0.3% lower.

The world’s shares, measured by MSCI’s gauge of 50 markets, tacked on 0.1% to log their eighth consecutive day of gains to record highs.

“Now that the tapering announcement from the Fed in September seems unlikely, we should expect ‘Goldilocks’ markets to continue to at least October or November,” said Masahiko Loo, portfolio manager at AllianceBernstein (NYSE:).

The latest rally, which started after Fed Chair Jerome Powell’s dovish speech at Jackson Hole Symposium last month, received a further boost from a surprisingly soft U.S. payrolls report on Friday.

The U.S. economy created 235,000 jobs in August, the fewest in seven months as hiring in the leisure and hospitality sector stalled, reducing expectations of an early tapering by the Fed.

“It’s the service sector that is losing steam and that clearly shows the impact of Delta variant,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ (NYSE:) Morgan Stanley (NYSE:) Securities. “And the Fed has no reason to insist on tapering this year if the Delta variant is having an impact.”

In Asia, Japanese shares extended their bull run on hopes the ruling Liberal Democratic Party will compile additional economic stimulus and easily win an upcoming general election after unpopular Prime Minister Yoshihide Suga said he would quit.

Tokyo’s rallied 0.9% also helped by an announcement on its reshuffle .

Mainland Chinese shares extended gains, with the rising 0.8% to reach its highest since February, helped by Chinese trade data showing both exports and imports grew much faster than expected in August.

“The mood is improving on hopes the government will take measures to support the economy and that the monetary environment will be kept accommodative,” said Wang Shenshen, senior strategist at Mizuho Securities.

MSCI’s ex-Japan Asian-Pacific index was flat.

U.S. were 0.1% higher from Friday’s close after the U.S. holiday on Monday. Bond prices eased slightly, pushing up their yields, with the 10-year U.S. Treasuries yielding 1.339%, up 1.3 basis points.

In the currency market, the euro changed hands at $1.1884, a tad below Friday’s one-month peak of $1.1909 but still well-supported ahead of the European Central Bank’s policy meeting on Thursday.

The ECB is seen debating a cut in stimulus with analysts expecting purchases under the ECB’s Pandemic Emergency Purchase Programme (PEPP) falling possibly as low as 60 billion euros a month from the current 80 billion.

The Australian dollar rose after the central bank went ahead with its planned tapering of bond purchases, but quickly gave up those gains after the bank reiterated its need to see sustainably higher inflation to raise interest rates.

“It obviously wasn’t a completely hawkish statement by any means,” said Sean Callow, currency analyst at Westpac in Sydney. “For the most part you’d generally regard them as being quite optimistic on the growth prospects for the next year or so…but we shouldn’t forget it’s dovish guidance on the cash rate.”

The was last 0.2% lower at $0.7423, off its 1-1/2-month high of $0.74775 set on Friday.

The yen was little moved at 109.76 yen to the dollar.

Oil prices fell after Saudi Arabia’s sharp cuts to crude contract prices for Asia revived concerns over the demand outlook. [O/R]

futures dipped 0.1% to $69.21 per barrel.



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Business

Asian shares rise on dovish Fed chair, oil up as hurricane batters Louisiana

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A man wearing a protective face mask, following an outbreak of the coronavirus, talks on his mobile phone in front of a screen showing the Nikkei index outside a brokerage in Tokyo, Japan, February 26, 2020. REUTERS/Athit Perawongmetha/File Photo

HONG KONG, Aug 30 (Reuters) – Asian shares started the week with gains and the dollar was not far off two-week lows after U.S. Federal Reserve Chairman Jerome Powell struck a more dovish tone than some investors expected in long-awaited speech on Friday.

Oil prices rose, meanwhile, after energy firms suspended production as Hurricane Ida slammed into the U.S.’ southern coast.

Japan’s Nikkei (.N225) rose 0.9% soon after the bell, and MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) gained 0.32% in early trading before Chinese markets had opened.

Australia (.AXJO)climbed 0.39% and Korea’s Kopsi (.KS11) gained 0.54%.

U.S. stock futures, the S&P 500 e-minis , were barely moved, up 0.04%.

Investors had been waiting to see whether Powell, who was speaking at a symposium in Jackson Hole, Wyoming, would give a clear indication of his views on timing of the central bank’s tapering of asset purchases or hiking interest rates to start removing monetary stimulus.

However, in his prepared remarks, he offered no indication on cutting asset purchases beyond saying it could be “this year”, causing the S&P 500 (.SPX) and the Nasdaq (.IXIC) to close last week at new record highs. read more

The next big event on traders’ calendars is U.S. nonfarm payroll figures for August due to be published Friday, as Powell has suggested an improvement in the labour market is one major remining prerequisite for action.

“A strong payrolls print could instigate a debate for a September tapering start,” Rodrigo Catril, senior FX strategist at NAB, said in a note.

The absence of a timetable for tapering caused U.S. benchmark Treasuries and the dollar to slip, and both trends continued on Monday morning in Asia.

The yield on benchmark 10-year Treasury notes was 1.3054% compared with its U.S. close of 1.312%, and the dollar index which measures the greenback against a basket of currencies was around a two week low.

Investors in China, in contrast, are watching data this week to see whether they will indicate policymakers are more likely step up easing measures.

Purchasing manager surveys for manufacturing and services are both due this week, with traders waiting to see whether a trend towards slowing growth will continue, a shift that has not been helped by recent localised movement restrictions to cope with an increase in cases of the Delta variant of the new coronavirus.

“We expect both the manufacturing and services PMIs to moderate in August, given the widespread Delta variant and strict lockdown,” said Barclays analysts in a note.

“With slowing growth momentum and dovish signals from the (People’s Bank of China) meeting this week, we expect more easing, but still at a measured pace”

Oil was also in focus after energy firms suspended 1.74 million barrels per day of oil production in the U.S. Gulf of Mexico as Hurricane Ida slammed into the Louisiana coast as a Category 4 storm. read more

U.S. crude rose 0.86% to $69.34 a barrel. Brent crude rose 1.25% to $73.38 per barrel.

Gold was slightly higher, with the spot price gold was traded at $1,817.7863 per ounce, up 0.07%.

Editing by Lincoln Feast.

Our Standards: The Thomson Reuters Trust Principles.

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