Japan’s economy minister lobbied for more BOJ action in the wake of Prime Minister Shinzo Abe’s announcement of a bigger-than-expected 28 trillion yen stimulus package on Wednesday. Through aggressive easing and a Halloween shock in 2014 and another stimulus round in 2015 the central bank has only been able to keep up with the volatile forex market.
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A day that’s expected to affirm the USA consumer’s strength could also begin with a step into uncharted unconventional policy by the nation whose demographic trends may serve as an early warning signal of what awaits other advanced economies.
The government said chemicals, excluding drugs, transport equipment and fabricated metals industries contributed to the increase, and a survey of manufacturers by METI showed they expected production to rise 2.4 percent in July and 2.3 percent in August. Also, “the theme overnight was markets’ basic disappointment with the FOMC statement”, Schlossberg said.
The yen rose to as high as 103.30 to the dollar from 105.30 in late USA trade on Thursday, though market players said large moves were likely a result of “fat finger” orders exacerbated by thin trading conditions as there was no apparent news to justify such big moves. Yet rising expectations of monetary stimulus in the run up to the meeting may leave traders disappointed, according to Pacific Investment Management Co’s Richard Clarida. Investors are now looking to the September meeting.
The Fed left its target interest rate in a range of 0.25 per cent to 0.5 per cent as expected and said near-term risks to the United States economic outlook had diminished and the labour market had improved, suggesting it will raise rates later this year.
“There is considerable uncertainty over the outlook for prices against the background of uncertainties surrounding overseas economies and global financial markets”, the central bank said.
Financial markets seemed underwhelmed by the central bank’s modest action. The yen has firmed up and is now surging up about 1.7 percent at the mid 103 level against the dollar.
It had seen traders cut their bets on a September Fed move to just 17 per cent. Benchmark 10-year US government bond yields fell back to 1.5 per cent with the move eventually following in European bonds after a choppy morning.
Headline inflation has been flat or negative throughout 2016, a sign that the Bank of Japan’s efforts to re-inflate the economy had failed.
Japan’s national consumer price index (CPI) declined 0.4% in June from a year earlier, following a similar decline in May, the Statistics Bureau said in a report on Friday. It’s still down about 2.1 per cent this month on the back of increased economic-stimulus bets.
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U.S. crude futures fell to as low as $40.95 per barrel and were last down 0.2 per cent at $41.08.
